People's Democracy

CAIRNS-VEDANTA DEAL

ONGC Made to Refrain from Acquisition

THE issue of Cairn-Vedanta deal on the oil fields in Rajasthan brings to light, one more time, the government’s cavalier attitude to the matters of national interest. The deal is said to be worth 9.6 billion US dollars. While the government’s attention has been drawn to it several times, and the issue was also raised in Rajya Sabha on August 19, 2010, the government has so far not thought it necessary to clarify the core issue.

To put it in simple terms, the core issue is: Why has the Oil & Natural Gas Commission (ONGC), which has 30 per cent participating interest in these fields, not claimed its first right of acquisition over these oil producing assets?

As it is, these fields have a production capacity of 1,20,000 barrels of crude oil per day, which is likely to reach to 2,40,000 barrels per day within a year.

Instead of facing this issue in an upright manner, the Group of Ministers (GoM), that was constituted for the purpose of examining the deal, has focussed only on peripheral issues of royalty and cess.

On its part, the ministry of petroleum and natural gas has offered a queer explanation. It said the ONGC did not find exercising the pre-emptive right on the proposed transaction between the Cairn India and the Vedanta for purchase of shares of the Cairn India Ltd as economically viable. In this regard, the ONGC Board meeting held on January 29, 2011, decided, inter alia, that “Acquisition cost offered by Vedanta to Cairn for the proposed transaction of sales of shares of CIL is much above the ONGC evaluated value of the proposed transaction.”

But, significantly, the basis of the ONGC evaluation has not been outlined in any detail despite repeated queries.

According to Rajya Sabha member and CITU general secretary Tapan Sen, who has raised this issue time and again, the valuation by the ONGC, which is totally shrouded in mystery, is questionable for the following reasons.

First, the value of the yearly output of crude oil at the rate of 2,40,000 barrels per day, at the present crude price of 100 dollars per barrel in the international market, comes to more than 8 billion dollars a year --- which the ONGC has, surprisingly, termed as unviable. This looks extremely odd, more so when we compare it with the acquisition cost of oil assets abroad by the same ONGC (Videsh). For example, in January 2009, the ONGC (Videsh) acquired the Imperial Energy Corporation which was operating in the Tomsk region of Russian Federation at a cost of 2.12 billion dollars --- with approval from the Cabinet Committee of Economic Affairs (CCEA) in August 2008. It is known that this asset produced 9,067 barrels of crude oil per day in 2009 and 14,724 barrels per day till August in 2010. This shows how highly questionable is the basis of valuation for acquiring the oil assets in Rajasthan, which would be producing 2,40,000 barrels of crude oil per day --- that is equivalent to 25 per cent of India’s total crude oil production.

Secondly, so far there has been no instance or precedence of acquisition of a productive asset by the ONGC within the country. As for the acquisitions abroad by the ONGC (Videsh), in its latest report number 28 of 2010-11, the Comptroller & Auditor General of India (CAG) has recommended that the  “company should formulate a policy and prepare a Petroleum Resources Management System for evaluation of investment opportunities for acquisition of producing discovered and exploration assets so as to mitigate the risks.”

In view of this opinion, the CPI(M) MP said in his letter to the prime minister on June 3 that the ONGC’s internal valuation --- which is totally opaque --- needs to be reviewed before any decision is taken on the Cairn-Vedanta deal. The MP has, in the past, several times urged the prime minister that in national interest the valuation should be done in consultation with the CAG, for rightful assertion of the ONGC’s right on these fields.

As for the common perception that the prime minister’s office (PMO) is not in favour of the ONGC’s investment in these assets on the plea of resource crunch, this is by no means a genuine apprehension. The fact is that the ONGC has a reserve and surplus of Rs 1.11 lakh crore and was in the profit of Rs 18,000 crore as on March 31, 2011, and that too without any debt burden. Thus the situation does not leave any scope for apprehensions about resource crunch. As a matter of fact, apart from its financial strength, the ONGC has the necessary technical expertise as well, as it has been in exploration and production job for more than 50 years whereas Vedanta is a totally new entity in petroleum business.

While the total lack of response and concern of the government to the letters from a member of parliament has been quite disquieting, the CPI(M) MP has expressed the hope that issues of public interest raised by elected representatives of the people in and outside parliament would be treated more seriously. Otherwise, it would appear that the government is bent upon pushing the issues of public interests to irrelevance through its non-response. In this particular case, one hopes that the regime would consider the key issues with the seriousness they deserve, put them on the agenda of the GoM and consult the CAG before taking any final decision on this deal.