Shell's power lady

WHAT'S A POPULATION geneticist doing in an oil and gas company? Yasmine Hilton, the newly appointed chairperson of the Shell Companies in India, has a doctorate in this subject—a far cry from drilling for oil. Sitting in the Saffron Room of the Chambers at the recently renovated Taj Mahal Hotel in Mumbai, Hilton laughs at the question, and jokes that she joined Shell because a reply to her application to Mumbai’s Tata Institute of Fundamental Research came too late. She was in Mumbai to help her parents adjust to a retired life, and wanted to work there. But since there was no reply for months, she says her father sent her back to Britain (where she had spent much of her life) “to earn a living”.

Although population genetics seems to suggest a field of study that has to do with people, it is actually a relatively new branch of genetics that studies the interaction of a population of genes in any organism. Shell, in the 1970s, had a research centre in Britain that focussed on agricultural research—crops, fertilisers, etc. Hilton applied for a job there in 1979, and got it. She had believed that “over time, I would get a chance to head their R&D centre”. One year on, the Tata institute got back, accepting her application, but, she says, “I had already joined Shell... I had started a new career, a new life, and wanted to stick to it.”

Stick to it she has—for over three decades now. And this despite the fact that the research centre was shut three years after she joined. Already in the Shell system, Hilton had the opportunity of trying out various jobs. “That’s the beauty of Shell,” she says. “You can work in any part of the business from upstream to downstream, in different functions, and in all parts of the world.” So, from plant research, she moved into technology, ending up as chief information officer of Shell in Britain. Along the way, she was general manager for applications development and projects in downstream businesses, and group global talent manager. And now, she’s back home in Mumbai, heading the biggest foreign oil company in India.

Shell has a long history in India, with The Burmah-Shell Oil Storage and Distributing Company of India set up in 1928. Starting off with selling kerosene across the country (including remote rural areas), it moved into importing and selling petrol for motor cars, and by the 1930s, it had set up a network of service stations. Over the next 20 years, the company sold aviation fuel, liquefied petroleum gas (LPG) as cooking fuel, etc., and in 1955, it commissioned what was then the country’s largest refinery. However, the company was nationalised in 1976 to become what is today Bharat Petroleum or BPCL. Shell, a subsidiary of the Netherlands-based Royal Dutch Shell, returned to India only in 1994.

The re-entry happened under Vikram Singh Mehta, and Shell was one of the first international oil companies to come to India after liberalisation. At the time, the oil industry was fully regulated, and it was vital to deal with the government on its terms, something Mehta showed he was well able to do.

Hilton will have to build on this relationship, something a section of analysts is doubtful about. Some say that Hilton, an expert in information technology with relatively unknown credentials in India, may not have been the right choice. “It would have been better if they had chosen someone with far greater networking skills to help shape policies,” says an oil and gas expert with one of the big four consulting firms.

“India’s oil and gas sector is still at a nascent stage with policies still being framed on just about everything—shale gas exploration, production-sharing contracts between governments and oil companies, etc.,” he adds.

Hilton’s challenge will be to steer growth in a constantly shifting policy regime, something that has exasperated state-owned firms and even India’s biggest conglomerate, Reliance Industries. And this, says an analyst, is without the other surprises that the government springs from time to time.

FOR ROYAL DUTCH SHELL, India is an important market. Earnings from the Asia Pacific region, which includes India, in just the upstream businesses have been growing. (In the trade, upstream is the business of discovering and drilling for oil and gas, while downstream refers to businesses based on them.) For FY12, earnings from Europe stood at $4.57 billion (Rs 27,963.8 crore), a fall from 2011’s $5.08 billion. Meanwhile, Asia Pacific’s share has been rising—from $5.7 billion to $6.3 billion.

Add to this India’s economic aspirations—and the resultant demand for energy. India is already the fifth-largest importer of liquefied natural gas (LNG) in the world, and, since energy consumption more or less mirrors GDP growth, demand is likely to go up by roughly 6% a year. According to the government’s estimate, the share of natural gas in the country’s energy basket will grow from 11% today to 20% by 2025, despite limited supply of gas.

That’s why Shell’s floating LNG terminal matters to the company, which expects to pump in a billion-plus dollars into the project. The state-of-the-art floating refinery is expected to be commissioned some time soon, although Shell is tight-lipped about the exact date.

To be moored off the coast of Kakinada, Andhra Pradesh, this floating storage and re-gasification unit (FSRU) will be able to receive LNG from carriers, and re-gasify it. The gas can then be transported through underground pipes to the port, and from there to towns and cities.

The location for the floating unit has been carefully selected; after Gujarat, Andhra Pradesh has the highest demand for gas in India, says De la Rey Venter, global head of LNG, Royal Dutch Shell. The Hazira LNG terminal is in Gujarat on the western coast, so setting up on the eastern coast made sense.

A number of power generation and fertiliser companies had set up plants on this coast, lured by the promise of plentiful gas supply after Reliance Industries’ announcement in 2002 that its D-6 field in the Krishna-Godavari basin in Andhra Pradesh held over 14 trillion cubic feet of gas. Technical and other issues saw gas supply from this field dwindle to a fraction, stalling production at these plants. As many as 37 power plants, which had contracted for 33 million standard cubic metres per day (mscmd) of gas from Reliance, have no fuel today.

If the Kakinada FSRU is commissioned in the next two or three years, as the industry expects, it will provide enough gas to power plants to produce close to 4,000 MW, adequate for 4 million homes.

Hilton believes there will be good demand for LNG, because it is still cheaper than any other liquid feedstock, and there’s a growing demand-supply gap. “We will bring the most competitive price [of LNG] to India because we can source it from anywhere in the world,” she says.

Of course, Shell is not the only company sensing opportunity in this region. Petronet LNG, India’s first and largest LNG player, is setting up a terminal at Gangavaram Port in Andhra Pradesh, and GAIL, with a partner, is planning to set up a terminal in Kakinada itself. Both Petronet and GAIL have been in the gas business in India longer than Shell, and GAIL has the added advantage of owning a network of pipelines that can take gas across the country. Shell’s big advantage comes from the fact that because it’s an international player in LNG, it can buy the liquefied gas at a far lower price than most other companies. “The Kakinada project uniquely benefits from Shell’s presence in several existing and planned LNG supply projects around the world which will help ensure diversity and security of supply to the state of Andhra Pradesh,” says Roger Bounds, vice president global LNG, Royal Dutch Shell.

Shell’s other advantage is in the format it has chosen—a floating terminal. “Setting up a floating LNG import terminal will not only bring down the cost compared to a land-based facility, but will also give the company the much-needed flexibility to move the facility wherever there is a far higher demand for gas,” says Amitava Sengupta, a former finance director at Petronet LNG. His back-of-the-envelope calculation shows that the cost of setting up a 5 million metric tonnes per annum (mmtpa) FSRU will be $3 billion to $3.2 billion, compared with at least $4 billion for a land-based facility.

The company already has a thriving $1 billion LNG terminal at Hazira, set up by Hilton’s predecessor, which is working at full capacity. The terminal is now being expanded from the current 3.6 mmtpa capacity to 10 mmtpa in the next four years.

SHELLIN GAS IS only one of the several jobs before Hilton. But for her to get things moving, she’ll have to deal with one of the biggest problems for any company, especially for a non-state-owned, private one: the industry is highly regulated. For any company to make a go of this business, a deep knowledge of the workings of the government and rapport with those in power is needed. That’s one of the huge advantages that Mehta enjoyed. A former bureaucrat (he was part of the Indian Administrative Services, which he quit to join Phillips Petroleum), he knew the government machinery from within and understood how to work it to his company’s advantage. And, in a country that runs on family connections, his lineage was impeccable. His parents were both diplomats, and his grandfather had been India’s high commissioner in Pakistan in the 1950s.

I ask Hilton what she thinks about the popular perception that networking is essential in her industry. “Networking for the sake of networking is unnecessary,” she says categorically, but adds that “you need to have a good relationship with the government, with citizens, neighbours, and companies to get business done, and I think that is necessary”.

It’s that relationship she is building now. In her own way, she is as connected as Mehta. Her father, Vice Admiral Rustom K.S. Ghandhi, was Commander-in-Chief, Western Command, and upon retirement, was chairman of the Shipping Corporation of India. He also served as governor of Himachal Pradesh from 1986 to 1990.

Her Indian background coupled with her international experience evidently had an impact on her bosses. “I have been at Shell for a long time, so they know me well,” she says, when asked about the selection and interview process. “The discussion was basically on what my aims and ambitions were... I think the meeting was on a Wednesday, and by Friday I had the job.”

Within months of taking over, Hilton had to face the first unpleasant surprise, courtesy the government. On February 13, 2013, without any warning, Shell India received a $1 billion tax notice, for miscalculating the amount it owed to the government exchequer on a transaction and proposing an adjustment of $2.7 billion. “It was quite a shocker and took the entire organisation by surprise,” says Hilton, who was barely three months into her job.

The notice had its roots in 2009, when Shell India issued shares to Shell Gas BV (the gas exploration and development company owned by Royal Dutch Shell) to finance investments in India, where the company operates a range of businesses from fuel stations to LNG facilities.

Shell India says an independent company had been hired to value the equity, which was priced at Rs 10 per share for a total investment of $160 million. The tax department, however, claimed that the shares ought to have been valued at Rs 183, adding up to the $2.7 billion adjustment figure.

Shell has disputed this contention in the Bombay High Court, and has also issued statements saying it was a victim of “incorrect interpretation of Indian tax regulations”. At the time, Hilton had issued a statement that said the notice to Shell was, in effect, a tax on foreign direct investment. She still believes the court will rule in Shell’s favour, and adds: “It is wrong to believe that anybody can manage the government. The point is to ensure that your voice is heard.”

HILTON IS MAKING sure that her voice is heard not just in the government, but within her own company, where she has to manage the aspirations of over 3,000 employees. “You are only as good as your people,” she says, explaining why finding and nurturing talent is one of her priorities. It’s something she’s proud of having done even in her earlier jobs, where, she says it was necessary to be both “rainmaker and starmaker”.

And how confident is she of creating stars in India? “I am confident that there will be a CEO of Shell Global from India. I guarantee it. I think India has the talent to do that kind of job. I have no doubt about it.” Could she be that person? “It’s too late for me,” she says, referring to the fact that she’s in her mid-fifties.

Her keenness to develop talent is one big reason why she’s focussing on nurturing Shell’s research centre in Bangalore. Researchers at the centre are working on cutting-edge stuff that Shell implements globally, including floating LNG terminals; clean water technology; lubricants; computational technology, and more. The work done by Indian researchers at this centre has been implemented to great effect in Shell’s Majnoon oil drilling project in Iraq, says Hilton.

Talking of the Bangalore research centre takes Hilton to her other focus area—technology. “We need breakthrough technologies to solve the energy crisis we are facing,” she says, and goes on to explain how. Among other things, the boffins at the Bangalore centre are coming up with better ways of using technology to study the earth and enable easier and more effective drilling. The other thing that has her excited is the research in catalytic activity. “We are piloting it... Maybe in a few years, the rubbish you throw out of your house will be used to create diesel.”

The other Hilton pet project is Shell’s retail foray. Shell has licences for 2,000 fuel stations, but runs only 70—and those at a loss. Hilton is determined to change this. In her previous job as CIO of Shell’s global retail business, she was responsible for the smooth functioning of nearly 44,000 fuel stations across the globe, all of which ran on an IT system developed by Shell.

Once complete deregulation happens, an all-India network of Shell fuel stations will top her agenda. The company is working on new designs and formats to make them attractive to customers. The network will add strength to the company’s retail push. It has already begun this in the lubricants space, which, Hilton says, is another growth area for Shell.

The problem in India is that fuel prices are still regulated, with the government providing subsidies to keep retail prices low. There has been partial deregulation, but oil companies cannot hope to make a profit till they can sell fuel at international rates.

Hilton is clear that she is not against subsidies per se. “You do need to support the most vulnerable sections of the society—that is not something that we need to question,” she says. That said, she agrees that the current subsidy level is “just not affordable”. She says that the answer could lie in targeted subsidies, using the Aadhaar card to identify the needy. “As long as you know the individual and what their means are, you can target the subsidy.”

WITH FUEL STATONS and lubricants, Shell’s downstream business will become significant once full deregulation happens. Meanwhile, she admits that Shell has been absent in upstream business, although it’s on her radar.

Hilton says she’s watching developments in this space. The company is moving cautiously, preferring to stay away from areas where it is likely to be hurt by frequent policy changes. That’s one of the reasons Shell is discussing the possibility of a long-term alliance with state-owned Oil and Natural Gas Corporation (ONGC).

If talks between Shell and ONGC are successful, it would mark Shell’s return to exploration, more than a decade after what Mehta still calls its “historic blunder” in selling off 50% stake in the oil-rich Barmer block in Rajasthan, for $7.25 million, to its Scottish partner Cairn Energy. Cairn struck oil in two years, and raised billions of dollars—nearly $2 billion through an initial public offering and another $8.7 billion by selling 58.5% stake to Anil Agarwal’s Vedanta. Mehta says the order to sell came from the headquarters; the company line is that oil prices then were low and the Rajasthan assets were below the threshold of prosperity.

Shell under Mehta had a joint venture, Shell-MRPL Aviation Fuels & Services, with Mangalore Refinery and Petrochemicals, an ONGC group company. In keeping with Shell’s risk-averse strategy now, Hilton will give priority to this venture. The risks in dealing with aviation fuel are relatively low, since there’s no subsidy component and aviation fuel is sold at market rates. Incidentally, Shell in India has a history of supplying aviation fuel; as Burmah-Shell, it fuelled J.R.D. Tata’s historic solo flight in a single engine de Havilland Puss Moth from Karachi to Bombay via Ahmedabad.

Before Hilton took charge in India, she asked her higher-ups what they thought Shell should be doing in India. “That’s for you to determine,” was the reply from her bosses. “For me, that was very exciting because it meant I could build the strategy for India,” says Hilton. The Shell India she is building will have a sustainable—and profitable—business model, she says. The bottom line for Hilton: Make Shell’s presence felt in India, and ensure the energy security of the country of
her birth.

That’s over the long term, she is quick to point out. Meanwhile, Hilton is confident that she can make a difference to her company and India’s fortunes in the near future as well. The ingredients—both local and global—are there. “Remember,” says Hilton, as she prepares to rush off to her next meeting, “Shell is looking for opportunities globally. My job is to make India a priority in Shell’s scheme of things and I am determined to do that.”