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MAY 30 2014

A decision 18 years in the making on 12 mt in oil reserves

  • Economic Times, ET Bureau / Hyderabad
  • Created: Fri 30th MAY 2014

India's crude oil production has been stagnant at less than 38 million tonnes for several years in a row, resulting in a quantum jump in the country's oil import bill - 40% in the two years to FY13 - but successive governments, it would seem, were content to sit on confirmed reserves of 12 mt for 18 long years without leasing it out to the awardee.

Since 1996, when the Ratna and R-series oil and gas fields in Mumbai offshore was awarded to Essar Oil by the PV Narasimha Rao government, India has seen seven governments and four prime ministers, but the production-sharing contract (PSC) for the block could not be signed with the Ruias-promoted company or anyone else. Former petroleum minister M Veerappa Moily ordered re-auctioning of the block during the very last leg of his tenure, official sources told FE.

"This (the decision to re-auction Ratna and R-series) was one of the last decisions of Moily," an official told FE. It is for the incumbent Narendra Modi government to take a call on this issue now.

The story of the Ratna and R-series block has been long one, mired in uncertainty. In 1993, the Rao government invited bids for development of 33 small and eight medium-sized discovered oil and gas fields, including Ratna and R-Series, which are medium fields located offshore around 130 km southwest of Mumbai. These fields had been discovered and partially developed by state-run ONGC.

Two bidders - Reliance Industries with Sante Fe Energy and Essar Oil with Premier Oil Pacific - bid for Ratna and R-series fields. On February 2, 1996, the Cabinet Committee on Economic Affairs (CCEA) approved the recommendations of the empowered committee of secretaries to award the fields to the Essar Oil-led consortium. On March 12, 1996, a letter of award was also issued. The Rao government and three more - led by AB Vajpayee, HD Deve Gowda and IK Gujral - came and went in the subsequent three years, and none of them took the follow-up action for the PSC to be signed with Essar.

In 1999, the then Vajpayee government's CCEA considered the matter and asked a negotiating team of secretaries (NTS) to come up with the terms of the contract. The NTS held 18 meetings between 1999 and 2013 (needless to say, the composition of the forum changed with the governments during the period) but failed to come up with amicable terms for sealing the PSC.

None of the petroleum ministers since 1996 - the list includes Ram Naik, Mani Shankar Aiyar, Murli Deora and Jaipal Reddy - chose to take a decision and Moily too deferred the decision at the last hour.

Industry watchers say audit objections by the Comptroller and Auditor General of India, CBI investigations into some of the hydrocarbon production contracts awarded previously and public interest litigation filed in courts have deterred the ministers from taking a decision.

Moily, sources said, decided to re-auction the block in view of the ambiguity over change in royalty and cess rates over these years. Moreover, there was a legal question on whether the letter of allocation issued in 1996 would continue to binding on the government to sign a PSC.

At the time of bidding, the Ratna and R-series fields had cumulative oil reserves of 12.33 million tonnes and estimated gas reserves of 1,285 million standard cubic metres that could be pumped out over a project life of 22 years. "The current reserves are expected to be more than the projection at the time of awarding," said another petroleum ministry official.

Tags

Essar Electric Power Development Corporation Limited Comptroller and Auditor General Veerappa Moily Oil ONGC Energy Central Electricity Authority Central Bureau of Investigation Indus Cabinet Committee on Economic Affairs Essar Mumbai Essar Steel Essar Oil Ltd. India

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