Reliance Industries Limited, India Challenges and Innovative Business Models for Emerging Africa in Downstream Hydrocarbon Sector

2 Africa – size is a challenge! * Image and information courtesy: CITAC Amazing geography Challenge is to meet energy needs of 1 billion people spread over 30 million Sq. kms (as compared to India 1.2 billion people spread over 3 million Sq.kms)

3 Demand growth shift Source: IEA June 2009 Demand growth shifting to developing markets including Africa

4 World Per Capita Oil Consumption Africa and India have similar challenge Source: BP Statistical Review 2009 Figures in Tonnes for 2008

5 Large potential for growth Demand growth will be driven by rising economic aspirations Source: CITAC

Challenges in Refining

7 Challenges ahead in refining sector Quality of crude oil processed Product specifications Refinery configuration Refinery Capacities Investment in Refineries – New Refineries – Upgradation

8 Quality of crude oil – look ahead Quality of Crude oil processed in Africa ( ) Quality of crude oil processed in Africa is expected to improve in terms of gravity and sulphur content Source: Hart Energy

9 Auto fuels specifications – current standards Majority of Africa needs to improve fuel specifications GasolineGas oil Source: ICF International

10 AFRI specifications Gasoline Source: HART/ARA/IPIECA 2007 Challenges to formulate fuel specifications to reduce Sulphur. Gasoil

11 Auto fuel specifications – look ahead GasolineGasoil Gradual reduction of Benzene in Gasoline & Sulphur in Gas oil is envisaged – challenge is to leapfrog Afri 4 Sulphur 150 ppm Afri 4 Sulphur 50 ppm Source: HART

12 Refinery configuration Majority of Capacity falls in the complexity range below 4.0 African Refinery Complexity Ranking Source: HART

13 Refinery configuration African Top 10 Refinery Complexity Ranking (Capacity above 50,000 bpd) Presence of Catalytic reformers in above refineries indicates regional orientation towards gasoline production Source: HART

14 Product demand slate - look ahead African Refinery, Blender Input and Production ( ) mbpd Demand slate is scheduled to shift from Gasoline to Gasoil 18% 19% 38% 29% Source: HART

15 African Projected Capacity Requirements ( ) (mbpd) Refinery capacity Crude Distillation is likely to be increased by over 30%, conversion and hydro processing will be doubled Source: HART

16 Trading Zones Q Q Q Oct 09Nov 09 Singapore (Dubai Crack) Europe (Brent Crack) USGC (WTI Crack) Investment in refineries US $/bbl Investment in quality up gradation, conversion and new refinery assets is a challenge considering current uncertain view on refining margins Refinery Margins Source: Reuters

Challenges in Marketing

18 Marketing - Challenges Deregulation started in the 90s Previously, markets dominated by Majors in almost all countries Main reforms implemented included – End of monopolies and liberalization of the marketing activities – Privatizations – Free imports, transport, storage, supply – Free prices in some countries – Still a long way to full deregulation Consequences impacted the competitive landscape – Pressure on margins – New marketing companies appeared – Emergence of local African champions – Exit of traditional players

19 A new paradigm in marketing… Source: PFC Energy

20 Source: PFC Energy – Downstream Africa Service … Impacting the competitive landscape Source: PFC Energy

21 Product Transportation, Distribution and Storage Infrastructure Investment in infrastructure of Ports, Terminals and Pipelines essential to meet growth in demand Source: PFC Energy

22 Transition to LPG from Bio fuels Like India, transition to LPG from biomass necessary due to environment and health impact Barring Oil Rich Countries in North Africa, LPG Penetration in other countries is low Government support is necessary to enable investments in upgrading infrastructure such as terminals, bottling plants etc. by – Import Duty waiver on capital equipment required for Import terminals, Bottling plants, Cylinders etc. – Collaborating with multilateral financing agencies – Arranging Micro financing to customers Priority attention by stake holders for promoting LPG is the need of the hour

Innovative Business Models

24 Refining – Adopt Hub and Spoke model Regional Economic Communities (RECs) expanding in Africa which should facilitate rapid integration of economic and energy projects. COMESA, EAC, and SADC, create a single African Free Trade Zone, consisting of 26 countries with a GDP of an estimated $624bn (£382.9bn). AFTZ would ease access to markets within the zone REC Image courtesy: Wikipedia Refining hubs to serve Zones on regional basis rather than country basis may help develop large size and complex refineries

25 Undertake Policy initiatives for… Refinery revamps Stake Buy-outs in existing refineries / RO networks Building new refineries Provision of Skills to refineries Building cost-efficiencies in Logistics, marketing and distribution through collaborations Process Automation Enabling networking operations on regional basis for IOCs Enabling harmonized tax structures within regions Building cost-efficiencies in Logistics, marketing and distribution through collaborations and economies of scale

26 Innovative Financing – Diaspora Bonds*/ Partial risk guarantees by World Bank/IDA/MIGA Collaboration structures and project management for refining, infrastructure projects Developing structured risk management Technology based innovations E-learning and blended learning Improving infrastructure Managing Oil Major Legacies of systems and processes effectively Improving service orientations at ROs through exchange of best practices Explore innovative collaboration for… * Estimated potential:5-10 billion USD annually Source: Innovative financing for development- World Bank

27 Cooperate for sustainable growth and development International co-operation is essential to effect the transition to more sustainable patterns of consumption and production. Cooperation with India would help Africa to attract scarce investment capital, to maximize Africa's energy potential, and to increase India’s energy security Thank you!