Rigged _ The Caravan - A Journal of Politics and Culture.pdf

8/21/2014 Rigged | The Caravan - A Journal of Politics and Culture

http://www.caravanmagazine.in/reportage/rigged 1/12

LOGIN|

SEARCH CARAVAN Go

COURTESY ONGC

The ONGC exploration rig Sagar Samriddhi. The corporation has been drilling for oil since the 1960s.

T

T

7

Print | E-Mail |Multiple Page

R E P O R T A G E

Home Reporting & Essays Reportage Rigged

RiggedWho is undermining Indias national oil company?By KRISHN KAUSHIK | 1 July 2014

HERE ARE MANY REASONS why world leaders are willing to go to war for oil: along

with natural gas, crude oil is crucial to electrify homes, provide piped heat to cities, light

cooking stoves, fertilise crops, run cars, transport goods, fly across continents, deploy navies,

power industries, build roads and manufacture polyester clothing, cold creams, ink, nail polish, perfumes, shoe polish, motor lubricants, and house

paintand in case of a blackout, when you cannot see any of this, to light a kerosene lamp. What water and air are to the human body, crude oil

and natural gas have become to modern societies.

Most sovereign states nurture the ambition to be energy self-sufficient, even if they know its not possible. Sixty years ago, in pursuit of the

independence and security that access to hydrocarbon fuels can bring, the Indian government created a specialised arm to hunt for oil and gas at

home and around the world. Today, India is among the hungriest consumers of oil and gas on the planet, and the agency that was set up to satisfy

this demand is among the three most highly valued corporations in the country. But it is failing in its core competence and existential mission:

finding and producing fuel for the nation.

|ONE|

HE YEAR 1999 WAS A SIGNIFICANT ONE for Indias oil and gas industry. In January, the government threw the countrys hydrocarbon

reserves open to private exploration for the first time. Under the New Exploration Licensing Policy, national and international state and

private companies were invited to compete for the rights to drill at sites around the country. In NELPs inaugural auction, 48 blocks, each

potentially worth billions of dollars, were up for grabs. The process attracted 21 bidders, including Indias largest company by revenue, the state-

owned exploration and production giant Oil and Natural Gas Corporation Limited.

For ONGC, which produced nine-tenths of the nations hydrocarbon fuels, this was new terrain. In the past, the corporation and another public

sector company, Oil India Limited, could freely select oil and gas blocks to lease from the government; private and international players were only

allowed to operate in the exploration and production, or upstream, sector by partnering with one of them. This had worked well through the late

1980s, but in the following decade Indias energy demands dramatically overshot domestic production. NELP was meant to narrow the gap by

fostering more aggressive exploration.

In mid August, about a week before the deadline to submit bids, a team of ONGC experts from Dehradun arrived in Delhi. In the past, the group

helped the government evaluate proposals from private corporations keen to set up joint ventures with the national oil companies. To ensure fair

862 162



I

play in the era of open competition, the experts had been relieved from government service and sent back to ONGC. The corporations director of

exploration convinced the then chairman and managing director, BC Bora, that these men would be best suited to assess the sites on offer and

prepare ONGCs tenders.

At ONGCs offices near Connaught Place, the experts gave a block-by-block presentation to Bora and his board. Only a handful of other people were

in the room. When the team finished, Bora asked them: if they could have just one site of all those on offer, which would it be? Which is your

number one? he said, according to a board member at the time, who was present at the meeting. They named a particular deep-water block in the

Krishna Godavari Basin, thirty kilometres off the coast of Andhra PradeshKG DWN 98/3, now commonly known as KG D6.

Bora, a mannerly engineer with greying temples who previously served as the head of OIL, told his team to double the minimum work

programme for the blockthe least amount of surveying and drilling that ONGC would guarantee to carry out. This is the main criterion on which

bids are evaluated. According to the board member I met, the experts replied that doubling the programme was unnecessary. We have been

evaluating bids for the government, they said. Nobody makes such aggressive bids. They had already drafted a very ambitious proposal, they

assured Bora. The director of finance was also concerned that doubling the work programme would cost too much.

There was a lot of halla, the former board member recalled. Then Bora said, OK, make it 50 percent moreone and a half times the work

programme. With these instructions, the experts went back to Dehradun, where the final bids were typed out.

When the blocks were awarded by the governments Directorate General of Hydrocarbons the following January, Bora was taken aback, the board

member said. ONGC had lost KG D6, outbid by not only one, but two firmsReliance Industries, which won the block, and Cairn Energy, a

European upstream company.

ONGCs director of exploration thought that something fishy was going on, the board member said. I feel it got leaked outour numbers got

leaked out and somebody was snooping around, he recalled the director telling him. The director suspected that the bid was opened beforehand

and given to Reliance. In the DGHs office itself the bid was opened and given to them, he speculated to the board member. They took back their

bid, and came back with a new envelope.

Of course this was unconfirmed, the board member told me. He wondered if there was one dark horse in ONGC who spied for the competition.

Were the private companies that cunning? He said almost admiringly, These people are capable.

NTIMATIONS OF CORRUPTION ASIDE, the first NELP auction seemed to more or less do its job, injecting the upstream sector with some

much-needed competition and the vigour of private enterprise. Reliance discovered gas in KG D6 in 2002, and started production there in

2008. This was Indias first operational deep-water gas project. At the height of the blocks output, the firm was drawing the gas equivalent of

460,000 barrels of oil from it every day.

ONGC was sclerotic by comparison. In 2005, the public-sector company secured a 90 percent stake in a neighbouring site, KG DWN 98/2, also

known as KG D5. The chances of successfully extracting oil or gas increase exponentially near a proven find, and ONGC announced its first

discovery in D5 in 2006. But eight years later, the public sector company is still not producing gas from the block, and has said that it wont be able

to until at least 2016. Meanwhile, Reliance is literally pumping gas into the national economy.

But things are not quite that simple. In addition to private suspicions about chicanery undermining certain NELP bids, there have been a number

of public accusations hurled at Reliance. The Aam Aadmi Party leader Arvind Kejriwal has speculated that the company is hoarding gas and, this

May, ONGC took Reliance to court for allegedly siphoning off thousands of crores worth of fuel from the reservoirs running through D5 and

another block. In addition, Reliance has never produced from D6 the amount of gas it promised to the government.

The stories of D5 and D6 reflect many larger problems that have plagued ONGC and the Indian upstream sector, particularly in the last fifteen

years. The NELP regime was supposed to end business as usual for the state-owned behemoth. Things have changed, and they haventboth to

ONGCs detriment. Its turf has frequently been raided by more savvy capitalist competitorsespecially Reliancewhile it has retained the culture

typical of a socialist sloth. In the meantime, people inside and outside the corporation have allegedly made a killing at its expense.

All of this has sent one of the nations most important institutions into a slow decline. As one industry expert told me, ONGC is like a company

suffering from HIV, growing internally weak. From the outside, ONGCs illness may be hard to detectbut this makes its condition all the more

dangerous. Even most people within the organisation dont realise that the company is gradually decaying, the expert said.

ONGC has been the governments specialised arm for the upstream sector since 1956, and has operated Indias largest oil field, Mumbai High, since

1976. It has no debt, and is exceedingly cash rich. In the 2012 fiscal year, its revenue exceeded Rs 83,000 crore; after the government snatched Rs

50,000 crore from it to offset fuel subsidies, it was still Indias second most profitable companya whisker below Reliance. At the end of the third

week of June this year, ONGC had a market capitalisation of over Rs 350,000 crore, or $60 billion, making it the countrys second biggest firm.

But ONGCs financial success derives entirely from the oil and gas it struck in the pre-NELP era. In nine rounds of NELP auctions since 1999, ONGC

has acquired more than 130 blocksover half the total number awarded by the government. And yet, it has not been able to sell a single drop of oil

or unit of gas from any of them. Mumbai High, the crown jewel of Indian oil fields, accounts for nearly 70 percent of ONGCs total crude oil

production, but its output is waning.

People within the industry are becoming aware of the corporations creeping rot. Few of the former petroleum ministers, bureaucrats, industry

executives, experts and journalists I met in the course of reporting this story had a positive forecast for ONGC. The most charitable adjective I

heard from anyone who was not an alumnus of the company was unlucky. If the corporation does not start producing oil or gas soon from the

blocks it has won in the last 14 years, if the price of crude oil crashes or the government increases ONGCs share of the nations subsidy burden, the

company will have a lot of red in its annual reports. Last fiscal year, it had to dip into its cash reserves to meet operating costs for the first time in

over a decade.

The company has enough assets to remain buoyant for years to come, but it needs to do much more than simply stay afloat if it is going to

accomplish its mission. Although it doesnt lack talented personnel, it often loses them to the private sector, and it needs to incentivise them to stay

on board. More importantly, perhaps, it needs to be able to use its substantial revenues to upgrade its exploration and production capacity. The

industry expert said that, if ONGC wants to survive, it has to transform itself into a technological company.

Indias demand for crude oil has tripled since the economy was unshackled from the Hindu rate of growth more than two decades ago.

According to the British oil and gas company BP, the countrys consumption rose from roughly 1.2 million barrels per day in 1991 to nearly 3.7



O

A

million in 2012. During the same period, its production increased by less than a third, to 900,000 barrels per day. India was almost self-sufficient in

the production of natural gas in 1991, but in 2012 the countrys daily output, equivalent to over 725,000 barrels of oil, fell more than 25 percent

short of demand.

According to the industry expert, these gaps are hurting the economy and jeopardising the nations energy security. The Ministry of Petroleum and

Natural Gas reports that in the financial year ending on 31 March 2013, nearly 85 percent of the crude oil consumed in India had to be imported,

at a cost of roughly $140 billionclose to 8 percent of gross domestic product. The country also imported $5 billion worth of liquefied natural gas.

Together, the two fuels accounted for over 30 percent of Indias import bill that year, and were the single largest contributor to the nations $90

billion current account deficit. This year, things are likely to be even worse, with the ongoing conflagration in Iraq driving up the international

price of crude oil, and thereby devaluing the rupee and contributing to price inflation at home.

India doesnt have enough reserves to ever become self-reliant on hydrocarbon fuels. But as long as it remains dependent on these sources of

energy, ONGC has a central role to play in helping to power the economy and insulate the country from instability abroad. According to the

industry expert, ONGC could have been among the largest oil exploration and production companies in the world, and still has the potential to be

among the finest. The corporation is as important to India as the military, and should be a fortress for the countrys energy security, he said. But

the largely honest and competent staff is now demotivated, and the company has refused to change. Many peoplefrom the government to

the boardroom and on downseem all too eager to hasten its decline.

|TWO|

N THE CHRONOLOGY PAGE of its website, the Directorate General of Hydrocarbons, the countrys upstream regulator, reproduces an

apocryphal tale of the discovery of oil in India. The story has many variations, but they all go something like this: seven years after Colonel

Edwin L Drake pioneered the modern worlds first commercial oil well in the US state of Pennsylvania in 1859, a group of engineers constructing a

railway through the Brahmaputra Valley noticed an oleaginous film on the feet of an elephant hauling logs through the jungle; they traced the

beasts footsteps back to a seep of bubbling crude. According to the directorates website, this led to the first Indian well, drilled by Mr.

Goodenough of McKillop, Stewart and Co., near Jaipur in Upper Assam in 1866. Thirty kilometres to the northeast, the Assam Railway and

Trading Company began spudding its own borehole. The projects engineer, one WL Lake, would shout Dig, boy, dig! at his coolies, giving the well

and the town that sprouted up around it their nameDigboi. The project, completed around 1890, became Indias first commercial oil well.

Under the British Raj, the Indian hydrocarbon industryconfined almost entirely to oil fields in Assamwas the exclusive domain of imperial and

private companies. But Jawaharlal Nehru and other Indian statesmen believed that there could be no freedom for the countrys economy or its

defence unless the oil industry is owned and controlled by the state, as the countrys second minister of natural resources, KD Malviya, put it.

ONGC was established in October 1955 as the Oil and Natural Gas Directorate, a department in Malviyas ministry. The new directorate worked

with Soviet experts to draft a proposal for surveying Indias oil wealth, which became part of the Second Five Year Plan, and in 1956 India placed

oil on a list of industries to be developed exclusively by the state.

By 1963, ONGC had been elevated by an Act of Parliament to a commission with statutory powers, and was conducting seismic surveys in the Gulf

of Cambay to explore the possibility of producing hydrocarbons offshore. The commission had already made a major discovery in the onshore

Cambay Basin in 1958, and by the end of 1970 it was producing 75,000 barrels of crude per day.

The potential economic and security benefits of a robust domestic fuel industry were thrown into sharp relief in the early 1970s. Ram Naik, the

petroleum minister from 1999 to 2004, told me that during Bangladeshs Liberation War, in 1971, foreign governments pressured international

companies to threaten India with oil embargoes. (A few other reports claim that the companies refused to sell fuel to the Indian military.) Naik said

this was the primary reason that Prime Minister Indira Gandhi initiated a takeover of Indias remaining private oil companies, including

the wholly-owned subsidiaries of international oil majors such as Burmah-Castrol and Royal Dutch Shell, in 1974. (Most writing on the period

attributes Gandhis nationalisation drive to the economic havoc wrought by the 1973 global oil crisis, and subsequent spikes in inflation and the

countrys import bill.)

Around the time of the 1971 war, ONGC began surveying off the coast of Bombay with the help of the USSR. Finding exploitable hydrocarbon

reservoirs, or pays, which are often thousands of metres below the surface, is an uncertain business. Discussing its aleatory nature, Sunjoy Joshi,

the director of the Observer Research Foundation, a Reliance-funded think tank, told me a story he heard from Subir Raha, a former chairman

and managing director of ONGC. I dont know if there is any record of this story, Joshi said, before relating how Raha, who died in 2010, used to

say that the Russians had been engaged to do the surveys far out to sea, where geologists thought there was better possibility of finding oil and

gas. But they had to justify coming to the shore more and more often, to screw all the girls in Kamathipura, Mumbais oldest and largest red-light

district. Moving their operations closer to land, they eventually found Indias most prolific oil field to date. The discovery of Mumbai High, Joshi

continued, chuckling, owes a lot to those poor women.

Sagar Samrat, anONGC-owned exploration rig, struck oil in what was then called Bombay High in 1974. The block was developed with impressive

speed, and started producing oil commercially in less than 24 months. Between 1975 and 1990, the companys oil and gas production shot up more

than ten-fold to the equivalent of almost a million barrels per day. Thanks to ONGCs production, Indias dependence on imported crude oil dropped

by more than a quarter, even as the countrys consumption tripled. ONGC also grew dramatically in size, Varun Rai, a professor at the University

of Texas at Austin, recently wrote. Starting from just 450 employees at formation in 1956, ONGC swelled to over 47,000 employees by 1990.

These were ONGCs golden years.

LTHOUGH ONGCS OPERATIONS EXPANDED dramatically in the decade and a half after it first struck oil in Mumbai High, the

commission was required to hand most of its revenues over to the state. By the beginning of the 1990s, it was as broke as the rest of the

nation. In 1991, the same year that India borrowed $2 billion from the International Monetary Fund, ONGC took $450 million dollars in loans

from the World Bank to develop its infrastructure in the Bombay Offshore field. Narasimha Raos Congress-led government initiated sweeping

economic reforms and, under pressure from its international creditors, began to deregulate the upstream sector. ONGC was soon reorganised as a

limited company, with the government as the single largest shareholder. (Today, the government owns just under seven-tenths of the company.)

Then, in 1998, the New Exploration Licensing Policy was announced, paving the way for the first round of auctions the following year, and

ushering in a new phase in ONGCs history.

Over the next half decade, the corporation began to grow into the financial powerhouse it is today. But the money it made was not a function of its

performance; instead, its revenues depended heavily on factors outside its control. At the same time, its interests were repeatedly sacrificed in order

to lure private players to the countrys oil and gas fields, and soon its coffers were raided to help pay the countrys bills.



W

One of the ways the government used ONGC was by forcing it to bid for oil and gas blocks under the new licensing policy. The petroleum ministry

and the hydrocarbons directorate felt they could artificially stimulate global interest in Indian fields if the first NELP auction was fully subscribed.

The more bids, the more blocks that are takenthey think its a great achievement, the former ONGC board member told me. If the bids

received were very few, they used to call ONGC and Oil India and ask them to bid for more. And they would take the credit for it. For every block

they unwillingly bid for and won, the companies had to deposit bank guarantees and meet the minimum work programmesor pay penalties.

These penalties were small in comparison to ONGCs revenues, but the corporation still had to divert its attention and resources to areas it didnt

believe would be profitable. The forced-bidding method was applied in further NELP rounds as well. Ram Naik admitted to me that he pushed the

state oil companies to bid for more blocks, but he said it was to encourage them to increase their production and exploration activities. The former

board member said the practice continues today.

For a time, the ministrys pricing policy also put the corporation at a disadvantage. Between 1999 and 2001, ONGC got considerably less than the

international price for both crude oil and gas, while its private competitors were paid the full amount. This was reversed in 2002, when Naik

announced that ONGC and OIL would be allowed to charge the market rate for crude oil. Around the same time, international oil prices began an

unprecedented six-year climb, from an average of $25 per barrel in 2002 to nearly $150 per barrel in 2008. In the new pricing policys first year,

ONGCs revenues from the sale of crude soared by Rs 10,000 crore, raising the companys profit by 70 percent. Between 2001 and 2008, the

companys total revenues grew by 150 percent.

As more and more money flowed into ONGC, it became an attractive source of funding for government welfare schemes. In 2004, on the cusp of

the shift from the BJP-led National Democratic Alliance government to the Congresss United Progressive Alliance regime, the government

announced that ONGC, along with OIL and the national downstream companiesthose involved in refining and marketing oil and gaswould

have to plug the hole created by a Rs 18,000-crore annual fuel subsidy. ONGCs share of this was 28 percent.

If, in the midst of the forced bids and the revenue drain, ONGC appeared to thrive, it had more to do with mounting global oil prices than with the

corporations actual performance. Since 1996, the companys total oil and gas output has more or less stagnated at a level equivalent to a million

barrels of oil per day. Its total share in the production of Indias oil has dropped by a third, to 60 percent. Today, ONGC is like the scion of a rich

zamindari family, living off the dividends from his inherited landholdingsbut failing to adapt to a world in which the system that created and

sustained his wealth no longer exists.

Despite its failure to extract any oil or gas from its new fields, ONGC likes to boast about its reserve replacement ratio, the rate at which it

acquires new hydrocarbon reserves to replace those depleted by production. An RRR of over one means a company is discovering or gaining access

to more oil and gas than it has pumped outessential for the future health of any upstream company. In financial year 2013, ONGC claimed an

impressive RRR of 1.84.

But the corporations figures are disingenuous. Hydrocarbon reserves are divided into three categories, depending on their likelihood of being

recovered: proved reserves, from which oil or gas can definitely be extracted using the best available technology and expertise; probable reserves,

which have a 50 percent probability of being successfully tapped; and possible reserves, which have only a 10 percent chanceor lessof

producing commercial oil or gas, even with all the technology and expertise in the world. The Securities and Exchange Commission, which

regulates US markets, mandates that RRR only take into account proved reserves. In 2004, Shell settled with the SEC for $120 million for massive

overstatement of its proved reserves and a misstated RRR. But the Securities and Exchange Board of India does not have similar regulations,

and ONGC has been including all three classes of reserves in its ratio.

In other words, the company is inflating its successwhich turns out to be negligibleand misleading investors. Its RRR on proved reserves in

financial year 2013 was a sliver-thin 1.08. In the 2011 financial year, ONGC declared that it had found 75 percent more fuel than it produced, when

in fact it produced 30 percent more than it accreted in proved reserves. In 2013, the Comptroller and Auditor General further criticised ONGCs

RRR, pointing out that in previous years the ratio had only stayed above one because of a dip in production.

I asked RS Sharma, ONGCs chairman and managing director from 2006 to 2011, why the company seems to have failed in its founding mission

over the last two decades. Its a very important issue, he started. When NELP was introduced, he explained, ONGC already had exploration

licenses in over two hundred oil and gas blocks; it was decided that these would not be renewed once they expired, but opened to competition

through the NELP auctions. Before the expiry of those licenses, all resources, rigs, etcetera had been diverted to those areas so they could be

optimally explored. The licenses for the last of those blocks terminated in 2013, he said. Now the priority is going to NELP.

HY HASNT ONGC PERFORMED BETTER? It seems partly to be a case of death by a thousand cutsa host of private interests trying to

reap their portion from the corporations wealth. Its a doodharu company, a former ONGC director from the NELP era told me this

March. Doodharu meaning milking.

I met the director in a small hotel room in one of Delhis exurbs, where I sat with him for several hours while he smoked cigarettes and told me

about the factors that have hindered ONGCs growth. One of these, he suggested, was the amount of money cycling through the company, which,

in combination with the bureaucracy that governs ONGC, makes it an attractive target for corrupt employees and contractors. The company has

an annual budget of Rs 30,000 crore for tenders that range from Rs 200 crore to Rs 10,000 crore, he said. So, big game there.

He continued, If money is siphoned off, naturally you dont expect the work will be done according to the contract. Work can be shoddy, and

there are often delays and cost overruns. As a result, contractors expect to pay penalties, and they surreptitiously load these liquidated

damages into their bids. Right from day one they are mentally prepared, he said.

A week earlier, I had met the industry expert who compared ONGC to an HIV sufferer, in a south Delhi caf. He told me that a contractor

lobbymade up of technical consultants, suppliers, and construction firmsis running the company. Those who provide big-ticket items like

rigs, pipelines and platforms have a nexus with politicians of all hues and colours. The former ONGC director agreed: I am not saying which

party or which politicians, but it is so common.

Leases on various kinds of exploration and drilling rigs are a large part of ONGCs annual contracts; a single one can cost up to $500,000 a day.

According to the industry website RigZone.com, in the third week of June, ONGC was operating 36 offshore rigsplacing it in the top ten among

upstream companies worldwide. The South Asia correspondent for a respected industry publication told me that a lot of ONGC rig tenders are

shrewdly worded with the final beneficiary in mind. Theyre tailor-made.

The former board member who told me about the KG D6 bid begrudgingly admitted that this was commonplace. Even in my time there were

reports of this. I am not saying this didnt happen. This might have happened. And this was happening at ONGC even before my time. He added, I



M

dont say this is totally eliminated.

He blamed this partly on the way bidding works. The government mandates that the lowest bidder must be awarded a given contract. He said this

is the biggest curse for public sector companiesmaking everybody equal and then choosing the cheapest of the lot. The private companies would

have gone the other way. They would say, OK, I must get the best, and then try to negotiate the rate down. But here, no. A contractor could be

Rickety Rig, standing on one leg, but if hes the lowest bidder you have to take itthats it. There might be a brand new rig available at one

rupee more. You cant even talk to that contractor. If you talk to him you will be taken to court. (Sometimes, however, the ministry pressures the

board not to award contracts to certain companies, even if they are the lowest bidders, the former ONGC director said. In such cases, the tender

process has to be repeated.)

With concerns about quality or technical expertise set aside, contracts can be swooped up by a wide range of bidders. I think everybody is

involved, even people who prepare the specification, he continued. I know because I have seen it myself. The biggest problem is right at the

beginningyou make a broad-based specification to include unscrupulous people, and that is where the trouble starts.

The industry expert went a step further: All postings go through a political processin some cases theyre even auctioned. He said that the

politicisation of ONGC was one of the main causes of its ills, and that some of companys directors were partners in this. Continuous interference

what he called crony socialismerodes the companys limited autonomy. Even though its one of the countrys seven Maharatna public sector

undertakings, which are promised more authority over their decisions than other state-run companies, the ONGC chairman and managing

director tends to have considerably less power than his international counterparts. For example, the chief of Petrobras, Brazils national oil

company, effectively decides the countrys oil and gas policy, I was told.

Other people blamed ONGCs problems on too much oversight. Many company directors and senior executives sail through their tenures without

taking bold decisions that might lay the groundwork for the companys future, supposedly because they dont want their pensions suspended when

they leave; the constant threat of The Three Csthe Central Bureau of Investigation, the Central Vigilance Commission, and the Comptroller and

Auditor Generalinduces paralysis. The former petroleum secretary and CAG VN Kaul rejected this explanation, calling it an argument of the

para-dishonestthose who want to be corrupt, but are scared of the consequences.

UMBAI HIGH LIES IN SHALLOW WATERS 160 kilometres west-north-west of the city, in a pericratonic basin on the edge of the Arabian

Sea. According to the former ONGC chairman and managing director Sudhir Vasudeva, it is one of the most difficult of fields in the

world1,200 square kilometres consisting of 15 or 16 floors of overlapping reservoirs. So it is like a club sandwich, with so many layers of

fillings inside. The industry expert I spoke with told me there were many vultures in the Indian upstream sectordomestic and international

private players who want the company to die so they can pick over its assets, of which this oil field remains the most prized.

As an example, the expert mentioned a letter that Vasudeva co-wrote with Shell Indias chairperson, Yasmine Hilton, to the petroleum ministry,

proposing a joint venture to explore the seabed around Mumbai High. Why does ONGC need Shell in that area? the expert asked, not seeking an

answer but to illuminate his point. Why?

Vasudeva, who retired from ONGC on 28 February, told me that the letter was written about a year ago. He had taken it straight to the petroleum

ministry, bypassing ONGCs board. They thought there is a lot of potential in the area around Bombay High. With Shells technology, they can

bring a lot of value to the table. Even after forty years, he added, we cannot say yes, we have mastered the field. If somebody has better

technology and has done this kind of work somewhere else and they can bring value to table, there is no harm in doing this.

But the industry expert said that the company doesnt need anybody in the Mumbai High area. He compared Shells strategy to first gaining entry

to someones drawing room so that you can later take over the bedroom, too. The ministry rejected the proposal.

If Vasudeva is right, however, and ONGC cannot master the area around the oilfield that it has managed independently for the past four decades,

how can it successfully expand its deep-water projects to areas where it has less experience, and achieve the boost in production it desperately

needs?

ONGC Videsh Limited, ONGCs wholly-owned international subsidiary, represents something of a worrying answer. OVL buys into, or farms,

international assets around the globe. Out of 36 exploratory assets farmed by OVL since April 2004, at a cost of more than Rs 6,000 crore, only five

have been successful. Eight of the 36, into which more than Rs 1,000 crore were sunk, had to be completely abandoned.

Then there is the case of Imperial Energy, a UK-headquartered energy firm with assets in Russia. In July 2008, OVL offered to buy Imperial for $2.1

billion based on an estimated output of 80,000 barrels of oil per day by 2011. The average price of crude at the time was $149 per barrel. Then the

global financial crisis struck, and within five months the price of crude had crashed to less than $62 per barrel. ONGC and OVL wanted to renege

on the deal, which had now become significantly overpriced. We wanted to retreat on Imperial. So much so that a delegation was sent by the

Indian government to London, an anonymous ONGC executive reportedly told Mint in October 2012.

People outside ONGC also raised concerns. Surya Sethi, the governments principal adviser for power and energy at the time, was among them. He

attended a committee meeting that included the petroleum, finance and law secretaries, at which a final decision was to be taken. According to

him, he objected to the deal and said the country should fight it out in court, but the petroleum ministry, represented by the petroleum secretary

RS Pandey, did not agree. RS Sharma, the former ONGC chairman and managing director, told me that Attorney General Milon Banerjis opinion

was sought. He said Banerji suggested that if OVL pulled out now, it would be an embarrassment for the country.

The committee approved the deal, which went through in January 2009. By the following year, output estimates for the Imperial assets had come

down to 45,000 barrels per day. (Today, it is producing only 15,000.) The CAG found that OVL had incurred a loss of nearly Rs 1,200 crore, or

roughly $236 million, between January 2009 and March 2010, because it could not achieve its original production estimate. In July 2012, the

Russian conglomerate Sistema JSFC valued Imperial Energys assets at $500 million, a quarter of the sum ONGC paid to buy the explorer, Mint

reported.

After Jaipal Reddy became the oil minister, in 2011, his ministry asked ONGC to open an inquiry into the Imperial Energy purchase, a former

petroleum secretary told me. The ministry wanted to know if vested interests had a hand in the deal, or whether the company perhaps failed to

conduct its due diligence. An Audit and Ethics Committee was set up, headed by an independent director on ONGCs board. Vasudeva said that he

wasnt sure if the committee had submitted its report to the government yet. When I contacted Arun Ramanathan, who was part of the

committee, he said he didnt want to discuss the findings before they were shared with the relevant authorities. Its still unclear when the report

will be made public.



S|THREE|

UBIR RAHA was the chairman and managing director of ONGC from 2001 to 2006. He passed away from lung cancer in February 2010.

One obituary described him as an embodiment of qualities that government-run organisations are not supposed to displayvision,

aggression, efficiency and exceptional dynamism. He was also at times a critic of Reliances business practices under brothers Mukesh and Anil

Ambani.

When the journalist Paranjoy Guha Thakurta met Raha in September 2009, the former oilman had undergone several rounds of chemotherapy.

Still, Thakurta wrote in his recent book, Gas Wars: Crony Capitalism and the Ambanis, he was remarkably alert. His words poured out in

torrents; he was crystal clear about his convictions and his conclusions.

This was Rahas final interview. Among other things, Thakurta and he discussed the first NELP auction, in which Reliance bagged KG D6. Raha had

heard that Anil Ambani went to Hyderabad before the bids were due, to solicit information about the Krishna Godavari oil field from a retired

ONGC official. The gentlemanly officer unpacked a few old papers from a rusty iron trunk, Thakurta wrote. The papers apparently provided

Reliance with crucial clues about the reserves of oil and natural gas that lay beneath the bed of the Bay of Bengal.

The former ONGC board member who told me about the corporations bid for KG D6 confirmed that some former officials might have had detailed

reports on the basin. In fact, he said, the company had surveyed the area and wanted to begin exploring there in the mid 1990s, before NELP set

in. But the governments procurement process created an insurmountable obstacle: at the time, only one firm in the world had a deep-water rig

capable of drilling the necessary exploratory wells, but the law required that a public sector company solicit at least three tenders for any project.

The red tape scuppered ONGCs plans, and the KG blocks were eventually auctioned.

Like the board member, Raha had also heard that secret information about the sealed ONGC bids had been leaked out, though he could not

independently confirm who had done this and for whom. When I asked a petroleum secretary from the pre-NELP era if he knew anything about

this episode, he laughed. I got the sense he found me naive. He informed me that when Mukesh and Anils father, Dhirubhai Ambani, was active, it

was said the countrys national budget could be in Dhirubhais hands before it was tabled in the parliament. The ONGC bid is nothing compared to

that.

By chance or by design, perhaps no single institution has gained more from government interference in Indias largest public sector company than

Reliance. For over two decades, the ministry, and then the directorate of hydrocarbons, has bent the rules in ways that favoured the Ambanis and

hurt the national oil company.

The fortunes of ONGC and the Ambanis have been intertwined since the corporation took out its loan from the World Bank in 1991. As a condition

of the deal, the bank required the Narasimha Rao government to open the upstream sector to private competition; the government decided to offer

joint ventures on the countrys operational hydrocarbon blocks. The petroleum ministry invited bids for 12 mid-sized oil and gas fields, six each

from ONGC and OIL, in 1992. A consortium of Reliance and a subsidiary of the US energy colossus Enron won two of themPanna-Mukta, and

Mid and South Tapti, which sit 100 kilometres off the Maharashtra coast. The fields had been discovered and partially developed by ONGC at

substantial cost. The joint venturein which ONGC owned 40 percent, and Reliance and Enron together owned 60 percentultimately enriched

Reliance at ONGCs expense, and set a pattern for the relationship between the two companies.

From the beginning, the tender process for the 12 fields was beset by irregularities. In the early 1990s, for example, Panna-Mukta was assessed by

ONGC to contain gas and oil equivalent to roughly 400 million barrels of crude. In the run-up to the auction, this figure was revised downward

several times. By the time the ministry prepared the final bid request, the estimate had dropped by 75 percent. This undervalued the find, and thus

reduced the price of buying into a joint venture. In addition, a Comptroller and Auditor General report from 1996 found that the evaluation

criteria for bids were neither complete nor unambiguous. In principle, this left room for the ministry to award contracts on a preferential

basis. There were no records to prove that all the bids were received by and opened on the deadline, 31 March 1993; the bids werent read out in

front of all the competitors, as is standard practice; and the names of the ministry officials who assessed the bids werent recorded.

Before long, major allegations of corruption surfaced. In 1996, the Central Bureau of Investigation began pursuing a 1993 bribery case in which

members of the Congress-led ruling alliance allegedly paid the Jharkhand Mukti Morcha to help defeat a no-confidence vote and keep the

government intact. In the course of that investigation, the CBI questioned Brijnath Safaya, the additional private secretary to Captain Satish

Sharma, the minister of petroleum at the time the joint ventures were awarded.

In a statement recorded by inspector Harish Sharma, and reported by Outlook, Safaya claimed that in the months before the contracts were

awarded he had been at Satish Sharmas house to receive suitcases stuffed with roughly Rs 13 crore. He also said that frequent visitors to the house

included Mukesh Ambani, and the heads of other private companies whose bids were eventually successful. Reliance, Safaya told the CBI, sent

Sharma a total of Rs 4 crore through one S Raman in 1993Rs 1 crore in June, Rs 1 crore in October and Rs 2 crore in December. The heads of

Essar and Videocon also allegedly sent cash. At least some of this money is thought to have been routed to the JMM. (Safaya later retracted his

statement.)

Questions about ONGCs own complicity also emerged. A team of corporation executives, including the then chairman and managing director, SL

Khosla, had assisted Sharmas ministry in evaluating the bids. Just 48 hours after the contracts were awarded, Khosla jumped ship from ONGC and

joined Reliance. A small clutch of senior executives followed him. The former board member told me that when a parliamentary committee

investigated the case, a new ONGC leadership discovered that many important bid documents were missing.

(Reliance has since welcomed a steady flow of former ONGC employees. Among the most prominent are Ravi Bastia and Atul Chandra. Bastia, a

geologist, moved to Reliance in the 1990s and played a crucial role in the discovery of gas at KG D6. He was awarded a Padma Shri in 2007. He left

Reliance in 2012. Atul Chandra, the president of Reliances international operations and an honorary advisor at the Observer Research Foundation,

joined the Ambanis firm after retiring as the managing director of ONGC Videsh Limited.)

The CAG could not quantify the total loss to the exchequer and ONGC, but it mentioned several amounts that the corporation should have

recovered from its private partner. This included a reimbursement of Rs 680 crore for the capital investments ONGC had made to develop the

Panna-Mukta field. ONGC also had to pay taxes and royalties to the government totalling Rs 1,428 per tonne of oil, which was liable to go up;

Reliance-Enron had been granted a 25-year fixed rate of Rs 1,381 per tonne. Perhaps most painfully for ONGCs bottom line, the government only

paid the public sector company Rs 1,741 per tonne for oil, but dished out Rs 4,545 per tonne to the RelianceEnron consortium.

In mid 2012, it was announced that total production from the Panna-Mukta and Tapti fields had crossed the 500 million barrel markfive times



T

T

the estimate on which the bids were based.

HINGS ONLY GOT BETTER for Reliance with the introduction of the New Exploration Licensing Policy. The former ONGC director told me

that during his tenure under the NELP regime, both the Directorate General of Hydrocarbons and the petroleum ministrythen headed by

VK Sibal and the Congressman Murli Deora, respectivelymade at least three unconventional decisions that disadvantaged ONGC and awarded

contracts to Mukesh Ambani.

Bids for oil and gas blocks are given points according to various criteria, he explained. One of these is meterage, the depth of the wells a company

offers to drill. In principle, the deeper the betterbut every hydrocarbon field has a natural basement, based on its geological ability to retain

hydrocarbon fuels, beyond which it doesnt make sense to go. In the Cambay Basin, the director said, everybody knows that the depth cannot be

more than 3,500 metres. But Reliance bid 5,000 metres stroke basementwhichever came first. They got marks for 5,000, whereas ONGC

couldnt write more than 3,500 because we knew we would hit the basement below that.

There are also points for how much territory a contractor will explore with three-dimensional seismic surveys. In another NELP round, Reliance

offered to survey more than the total area of the block on offer, the director claimed. So they got marks on that.

First time we objected for basement, the director continued. Sibal ruled against them. Second time we objected for this. We were again ruled

out. The directorate acknowledged that there were loopholes in the bidding process and said they would be rectified in subsequent rounds, but it

didnt invalidate Reliances winning tenders.

Third time was the worst, the director said. In the early stages of a project, a contractor gets the lions share of profits in order to offset the risks

and costs of exploration and production. But the government is also supposed to get a cut. In theory, the bidding process should make that cut as

large as possible. Reliance ignored this logic by proposing to keep all the money generated in the first phase of production. Nowhere in the world is

it like that, the director said. It is always like there has to be the governments share of profits and your shareand then there is the cost

recovery part. Unless the field proves to have very large reserves, the project wont move to the next phase, and the government will not get a

single penny.

I said nowhere in the world will be it accepted, the director continued. The government will give it zero points. But it happened that way

Reliance got the block. ONGC complained to the ministry again, but nothing happened. The director believed that important bidding documents

were leaked to Reliance, which was in effect told, These are the areas kept for you.

Today, Sibal works as an independent consultant. When I met him, in January, he denied all such allegations and said he had done nothing wrong.

He alleged that people close to Anil Ambani had propagated false information in order to damage Mukesh Ambani at the height of the brothers

well-publicised feud, which began sometime after their fathers death, in 2002. A close associate of Anils admitted that information was pushed by

their camp at the time, but denied that it was incorrect. Since there is now a truce between the brothers, he did not share anything more. The

Supreme Court has directed the CBI to investigate claims that Sibal gave preferential treatment to Reliance, and the agency has also charged him

in an unrelated corruption casebut so far none of the allegations against him have been proved.

HE MAJOR FOCAL POINT for controversy in the relationship between ONGC and Reliance remains KG D6, Indias most famous natural gas

block. Even the sites name announces the Ambanis influence: the D in D6and in the names of other blocks in the Krishna Godavari

Basinstands for Dhirubhai. If theres a strong argument to be made that capitalist competition is a necessary antidote to the malaise at ONGC,

its also clear from the story of D6 that private participation in the upstream sector is fraught with problems of its own.

When Reliance first struck gas in D6, in 2002, the company said it was the greatest natural gas discovery in India. It neglected to add the caveat

that this was true only for that year. Subhir Raha told Thakurta that Reliance misled the market to raise capital. ONGC had discovered larger

gas reserves along the west coast of India, but in different years, Thakurta wrote.

After reporting $8.8 billion in capital investments to develop the block (all of it recoverable under a profit-sharing agreement with the

government), Reliance promised to pump an astonishing 80 million metric standard cubic metres of gas (equivalent to roughly 530,000 barrels of

oil) from the site every dayenough to satisfy more than half the countrys gas needs. But the blocks output peaked in 2010 at three-quarters of

that amount, and began steadily dropping. This year, it is only producing the equivalent of 80,000 barrels of oil per day.

The allegations against Reliance include inflating investment costs in the block in order to lay claim to a greater share of revenues, and artificially

delaying gas production. These claims, which Reliance denies, are the subject of an ongoing arbitration battle between the company and the

government. Unofficially, Reliance is accused of hoarding fuel while it waits for an imminent price hike, which was to take effect at the beginning

of April and double the price of natural gas. The Election Commission deferred the hike because of the general elections. In response to the delay,

Reliance in May filed its own arbitration notice against the government.

Others believe that the block was never as prolific as Reliance proclaimed, and that all the companys grand announcements were made to boost its

market value. Still others propose that D6 is underperforming for less nefarious reasonsthat Reliance was inexperienced in handling the tender

deep-water block, and has ruined it by collapsing the reservoirs. For its part, Reliance has issued statements that unforeseen geological

characteristics of the basin caused the drop in production.

The controversy does not end at the borders of Reliances blockthere is also ONGCs lawsuit accusing Reliance of stealing reserves from the public

sector companys adjacent sites. Two former ONGC chairmen, RS Sharma and Sudhir Vasudeva, told me this was geologically possible. Sharma

pointed out that it has happened in the past between sovereign nationsincluding Kuwait and Iraq, where it led to war.

Vasudeva said that attempts are being made to establish whether Reliance has indeed pumped gas out of ONGCs blocks. The Directorate General of

Hydrocarbons is mediating, the ministry is mediating, we have given information, and they have given information. Of late, he said, Reliance

had not been cooperative, but he was confident that the issue could be resolved. On 23 May, Reliance issued a press release saying it was

saddened by ONGCs accusations, and it denied the claim of apparent theft of gas.

But the petroleum secretary from the pre-NELP era speculated that this was part of a design by Reliance and its government cronies. He said that

when VK Sibal and Murli Deora were in office, ONGC was made to squat on its blocks, without producing, so that Reliance could siphon off its gas.

Various hurdles were reportedly erected before the public sector company in order to allow Reliance a substantial jumpstart in gas production. On

2 March 2007, RS Sharma, the ONGC chairman and managing director at the time, wrote a letter to the then petroleum secretary, MS Srinivasan,

accusing Sibal of blatant bias and of running a malicious campaign against the public sector company. (Just a year earlier, Raha, too, had



W

written to the petroleum secretary about Sibals sarcastic and derogatory remarks denigrating the company in public and media.) The

previous month, Sibal had refused to officially recognise ONGCs discovery of gas in D5. Sharma claimed this led to a ten-day free fall in the

companys share prices, which wiped Rs 23,500 crore off its market valuation. He added that Sibal had recognised similar discoveries by private

players (hinting at Reliance), but had applied different norms to ONGC and had levied highly excessive penalties on the company.

ONGC also tried to bring in the global oil giants Petrobras and Statoil as partners on D5. Petrobras in particular has significant expertise in deep-

water exploration and production, and ONGC was very keen to have an experienced global player, Sharma told me. But the petroleum ministry,

under Deora, dragged its heels on approving the joint venture, and ultimately the international partners pulled out in frustration, turning their

attention to better prospects in other parts of the world.

Deoras ministry never explained why the decision was not taken in a timely manner. I asked the former ONGC director if this had any effect on

ONGCs prospects in D5. Yeah, it hurtit hurt very badly, he said. If Petrobras had been involved in D5 and two other blocks they were interested

in, things would have been different, totally. He said that he and several of his senior colleagues believed the government was trying to

downgrade ONGC to boost private players. Mr Deora was trying to help out Reliance. His team was a Reliance team.

Reliances spokesperson, Tushar Pania, declined multiple phone and email requests for an interview. Messages to the email address listed on Deoras

Rajya Sabha web page went unanswered. I also made repeated calls to one of his two official phone numbers, but it seemed to be disconnected;

when I got through to someone on his other listed line, I was told I had the wrong number.

When I asked a petroleum secretary who served under Deora if the minister had ties to Reliance, he scoffed and said, He was running the ministry

for his nephew; Mukesh calls him uncle. I asked him if he had heard the terms R positive and R negative, which a beat reporter had told me

were used to describe petroleum ministry officers affinities with Reliance. He replied, In that ministry, you can either be R neutral or R positive

not R negative.

|FOUR|

HATEVER THE CONSTELLATION of forces holding ONGC backthe contractor lobby, the para-dishonest, the vultures, the socialist

cronies, Reliance and the Ambanis, the government itselfits clear the corporation has been significantly weakened. In March, I went

to meet Sudhir Vasudeva at the house allotted to him as the chairman and managing director of ONGC, in south Delhis tony Panchsheel Park. In

his drawing room, I noticed at least half a dozen statuettes and images of Ganesha. Vasudeva has a neatly cropped but bushy moustache on a

chubby, fair face, and an authoritative personality. Though he had retired from ONGC ten days earlier, he still seemed to see himself as the boss.

Two mobile phones rang and beeped throughout our hour-long meeting.

Vasudeva painted a rather dreary picture of the economic health of ONGC. See, today the average cost of production is in excess of $40 a barrel,

and that is because we are producing predominantly from fields that are between 35 and fifty years old. He said fields of this vintage usually

decline at a rate of 7 to 8 percent per year, but ONGC has slowed that to about 2 percent through investments in infrastructure, whether it is

pipelines or wells or surface facilities.

All these are adding some production, but it is not really commensurate with the kind of investment which is being made, he continued. And

therefore the costs are increasing at a rate of something like 7 to 8 percent every year.

Surya Sethi, the governments former energy adviser, said that when he started in the role in 2001, ONGCs cost of extracting each barrel of oil or

the equivalent amount of gas was $4 or $5. By the time he left, in 2009, recovery costs had reached $36 per barrel, partly because ONGC kept

spudding dry wells.

Costs have only gone up since then. In addition, ONGC is now paying for more than 36 percent of the nations fuel subsidies. Until last year,

downstream companies shared a third of the total costs, but their profits have been deflating to untenable levels and the entire burden is shifting

to exploration and production companies, Vasudeva said.

Year before last we got some $53 or $54 per barrel, he continued. Last year we got only $47. The rest of the international price of crude, which

was roughly $100 per barrel, went to paying for subsidies. This year, in the first three quarters, we have got something like only $44, so the

margin is very, very thin. If the cost of production is in excess of $40 and we are only getting $44it is not really getting us enough money.

With $44, it is just not possible to sustain this thing, he went on. We have been telling the government that we must get a minimum of $65.

Then only we will be able to generate enough so that we can support our old fields revival, and new fields which are coming up.

Vasudeva told me that ONGC had lost Rs 140,000 crore due to the subsidies. With Rs 140,000 crore OVL would be three times bigger than what it is

today, because no project of ONGC has ever suffered for want of funds, he said. So all this money, had it been available in our coffers, would have

only gone for the expansion plans of OVL and others.

Even at $65 per barrel, the government would still be getting a fantastic deal, Vasudeva argued. ONGC already pays $33 per barrel to the

government in various duties and fees, so the true cost to the country would only be $32 per barrel. On the other hand, if ONGC goes under, or its

output precipitously declines, the government would have to pay the full international price of crude, which is three times as high. Vasudeva

estimated that this would cost the country an additional Rs 325,000 crore, or $54 billion, over twenty years.

The situation with natural gas is in some ways even worse. The government pays ONGC only four-tenths of what it pays private companies for

every unit of gas, and this covers only half of the corporations cost of production. Some say the hike in gas prices, which is now slated for

September, will redress this; others say ONGC wont get the new price at all.

Sethi had a slightly more cynical take. I met him in the lobby of the Oberoi hotel in Delhi, where he had just finished attending a conference on

energy. People were saying, The price of gas will not increase only for Relianceeven ONGC will get it, he said. ONGC will get it upfront, but

the government will snatch it away with the other hand, by passing on more of the subsidy burden to ONGC. He said that when the price hike

comes into effect, the government will have to increase subsidies for fertiliser producers and power plants, the main consumers of natural gas. As

it is, ONGC is paying one-third of the total, which Reliance doesnt pay. He added, You might as well just write a cheque for that amount to

Reliance, instead of going through this charade.

Sethi said he once asked the members of a cabinet committee meeting how they could dare to hurt ONGCs profits and productivity, and minority



W

M O R E F R O M THI S S E C TI O N

Beyond The Boundary

The Far Valley

Home Front

Island Of The Pure

Queen

The Long Shot

R E L ATE D AR TI C L E S

The Long Shot

The Network Effect

Nepal | Toilet Training

Inside Man

The Gloves Are Off

News Without Principle

K E Y W O R D S

CAG

Government Subsidies

India's Natural Gas

Resources

Mukesh Ambani

Murli Deora

New Exploration

Licensing Policy

ONGC

Reliance

VK Sibal

Mohan

10 August 2014

14:52 PM

Thanks, Krishn Kaushik, a well researched article. Readers,Please go through the essay " India's unloved billionaire" in"The Economist" magazine dated August 2nd-8th, 2014.

reply

Mansoor Khan

04 August 2014

23:49 PM

Dear Krishn, Excellent article. But I feel a crucial point ismissing. We are living a Post Peak Oil world and energydescent is inevitable and happening. Most people miss therole of cheap petroleum energy and it's byproducts inshaping our modern industrial world. Nothing else can do the

View as Multiple Page

shareholders interests, by pushing the subsidy burden so high. I said that I would buy one share of ONGC and take the government to court.

Vasudeva worried that the government and the public didnt understand the long-term dangers of undermining ONGC. Having done so much, it is

not being appreciated by anybody, he said. The consumer isnt aware that the company has paid so much to make fuel available to them at

affordable prices, and what the cost of all this is.

India still has a poor, developing economy, RS Pandey, the countrys petroleum secretary between 2008 and 2010, told me when I met him this

March. A few days earlier, he had joined the BJP. Pandey compared the government to an impoverished mother, and public sector companies like

ONGC to her children. A poor parent gives milk to her child, but also forces it to indulge in child labour. The milk is ONGCs profit, earned from

the countrys natural resources; the subsidy is child labour. Pandey said that this is done for the familys survival.

HEN THE PRODUCTION from KG D6 dropped below 30 million metric standard cubic metres of gas per day (the equivalent of roughly

180,000 barrels of oil), in the 2013 financial year, the Directorate General of Hydrocarbons finally took action against Reliance. Because

the company was failing to meet its contractual targets, the directorate ruled that it would not be reimbursed for $1 billion of the $8.8 billion it had

invested into the block. In 2013, the directorate added penalties that raised this amount to almost $1.8 billion. It was one of the few attempts the

government has made to check Reliances questionable actions in D6.

Reliance responded to the original ruling by filing an arbitration notice against the government. In 2012, while the proceedings were underway,

the company began a conversation with ONGC about sharing some of Reliances unutilised infrastructure in D6 for use in adjacent blocks. By the

following July, the two firms had signed a memorandum of understanding. A report in the Financial Express that month said, The state-run

explorers move follows an internal study that said it could save $45 billion in capital expenditure if the deal materialises. The contract details are

yet to be hashed out, but the deal may help Reliance recover its capital investments, if ONGC agrees to pay rent on the infrastructure.

How much will ONGC pay? Vasudeva had a rather spluttering answer: This is first of all I mean the consultant is working out what all

whether this can be done or not, what all will be required for that, and once this is done, it is decided, and this also needs to be decided, whether it is

short-term or long-term. He added, So all that isit is a work in progress. At this stage, he said, it is difficult to even put a price range on the

agreement.

But should ONGC pay Reliance anything at all? If the ministry reimburses Reliances investment, then the infrastructure belongs to the

government. If rent should be paid to anyone, its the exchequer. I asked the former ONGC director, who had worked extensively on the Krishna

Godavari Basin, if his ex-employer should pay anything to Reliance for using the facilities. He said, not at all.

This May, there was another sign that people are waking up to the rot at ONGC. On the eve of the announcement of the general election results, the

corporation filed its petition, in the Delhi High Court, accusing Reliance of pilfering gas from the oil fields neighbouring D6. The main respondent is

not Reliance, however, but the Union of India, the corporations largest shareholder. The suit also names the upstream regulator, the Directorate

General of Hydrocarbons. ONGC claims that neither the government nor the DGH have done enough to stop Reliances alleged theft, or to help the

public sector company assess and recover its losses.

It is rare for a company controlled by the state to take its owner to court. The Congressman Veerappa Oily Moily, who was then in his last days

as the minister for oil and natural gas, was livid. He wanted to launch a counter-inquiry into why the corporation had taken such a step. But

perhaps that was the point: in addition to protecting the interests of ONGC and its minority shareholders, the suit could wrest some autonomy from

the government. This could signal, however weakly, that Indias largest oil and gas company is slowly becoming willing to shield its business from

the whims of the government and the predations of private companiesan important step if the public sector corporation is going to fulfil its

responsibilities to the nation.

Krishn Kaushik is a Staff Writer at The Caravan.

R E AD E R ' S C O M M E NTS [ 1 1 ]



same and so we are facing economic shrinkage and globalenergy wars now. When seen through the lens of Energy andPeak Oil, the sudden surge of disturbing world events makessense. Rising fuel costs, rising food prices, resource wars inoil producing countries and the slowing global economy. Ihave written a book to educate Indians about this country issweetly unaware of Peak Oil. I would recommend yourreaders to check it out at www.mansoorkhan.net Thanks foryour probing article again.

reply

aswin

19 July 2014

23:01 PM

Thanks Kauahik for the wonderful article. There is so manypower plants and fertilizer companies upstream waiting forgas from kg basin. I am still not sure if there is gas or not inthe field however reduction in output has hurt the consumersso much. We could have had cheap CNG for the automobilesinstaed of depending on expensive imported gas. It is ashamethat no onw knows why they aren't producing 80mmscd and producing about 14 now. We need cheap gas tooffset expensive imports from qutar or australia. We arealready building huge import terminals and connectingdemand and supply centers as through we already knew thatwe would not produce enough gas in the future .

reply

Rohit Rajagopal

14 July 2014

19:13 PM

The best of the year so far caravan.!

reply

dkap

13 July 2014

16:22 PM

The argument that the govt hinders ONGC's progress oratleast destabilises it financially by 'burdening' it with thesubsidy quota is troubling- money made by a PSU belongs tothe state, and it is up to the govt to decide how to spend it. Ifnot for fuel subsidy, it would've been spent on somethingelse. Reliance and the Ambanis, poster boys of wealth inIndia are just the faces of the Indian private sector thatthrives on cutting an extra rupee from whichever possiblefront- lying to the market while providing hopelessly poorquality products and services generated by poorly managedand maintained resources and infrastructure. You see it inthe sloth slow mobile internet speeds, poor quality privatelybuilt infra, drugs that get rejected by auditors time and againif not for their quality then for the processes that manufacturethem, cars that can't withstand crash test standards deemedas basic, the list goes on. While govt actions beinginfluenced by corporations isn't new or exclusive here, weneed to find solutions fast. Subsidies can't disappearovernight, and the very same govt that is accused ofundermining ONGC by siding with the corporates also tooksteps to free pricing from political whims, considerablyreducing the subsidy 'burden', both for oil and gas.

reply

Krsna

13 July 2014

12:56 PM

Ambanis + Congress (specifically Gandhi family) have a jointagreement to loot India. This was deal struck duringDhirubhai & Indira Gandhi days. Nawaaz Sharif (current PakPM) is also Ambani family friend from Dhirubhai's days.Dhirubhai was the original political fixer and his sons arecontinuing the tradition and reaping the benefits. Modi is alsoin their pocket now. All I can say is, good luck to the aamaadmi of India!

reply

agnostic

26 July 2014

15:41 PM

If you had read the article at all and were not as biased asyou are, you would know that the year 1999 when privatesector participation was allowed, the NDA headed byVaypayee was in power.

reply

wingedream

09 July 2014

13:37 PM

http://banjo55.blogspot.in/2014/07/ambanis-all-about-gas.html That Caravan has done a yeoman's service for thepublic in this very detailed expose on the murky goings on inthe Petroleum Industry is undeniable. One is naturallytempted to see an unholy thread stitching the recentaccusations of Kejriwal, the strange silence on the book GasWars, take over of various written and audio-visual mediachannels by the Ambanis, the recent record-making electoralvictory of Modi and the BJP together, the otherwisepugnacious media removing their gloves on hearing aReliance owned Aston Martin crashing against two cars inPeddar Road, Mumbai. The scale and depth of the researchwould interest many, invite the professional to delve deeperand evaluate its veracity and most importantly to instill hopein flagging hearts for there are still honest and boldcommentators and researchers who keep the thin fig-leaf of



freedom of expression and investigative journalism alive andfluttering. That social, political and economic activism hasbeen pushed to the mountains and tribal areas with no takersare common knowledge, too.They exists outside of theconstitution. In this light and context, alone these articlesborder the revolutionary and heroic. It shall be not mypurpose here to comment or opine on the contents of thedetailed article for it is better left to those who quiteunderstand the subject and are professionals, which I amnot, surely. As a public spirited citizen however, it shall be mychosen course to bring to attention of many to be not easilyimpressed by the Antillas that the insanely rich andsuccessfully reside in and to endeavour to find credence inthe prescient sense of Balzac for having said that behind allwealth lurks a crime. I can only recall with a great degree ofsadness at the clout exercised by both the brothers and hisilk of which first a vitriolic Arundhati Roy and then a, moreconservative Gopal Gandhi went on to elaborate. "Wealthhas been concentrated in fewer and fewer hands," Roy tellsthe Georgia Straight by phone from New York. "And thesefew corporations now run the country and, in some ways, runthe political parties. They run the media."The Delhi-basednovelist and nonfiction writer argues that this is havingdevastating consequences for hundreds of millions of thepoorest people in India, not to mention the middle class. Youonly confirm what they had already alleged.BJP does by daywhat Congress does by night. And the 60-40 argument ofArundhati Roy is the cherry on the cake.Ambani's the shrewdbusinessmen that they are pay in that ratio to the parties inpower or in opposition-i.e. by turns, Congress or the BJP.Rockefeller Foundation controlled, penetrated and fundedmany times the State and Intelligence Departments ofAmerica. She says Tatas have been aping these strategiesfor long.Ambanis are just carrying on with the dirty ways."Slowly, they decide the curriculum," Roy maintains. "Theycontrol the public imagination. As public money gets pulledout of health care and education and all of this, NGOsfunded by these major financial corporations and other kindsof financial instruments move in, doing the work thatmissionaries used to do during colonialismgiving theimpression of being charitable organizations, but actuallypreparing the world for the free markets of corporatecapital."A kind of perception management. On April 14th2014the erstwhile Petroleum Secretary T N R Raosprophetic question on why up till now the book on Gas Wars:Crony Capitalism and the Ambanis by Prananjoy GuhaThakurta had not been dumped was answered on 15th April2014, the following day when a legal notice was served onthe authors, various distributors and the Publishers by thelegal reps. Of the Ambanis. Interestingly, most of the mediastayed away from commenting while conversely, theirenthusiasm in discussing Batra on Wendy Doniger's book onHinduism,Sanjay Baru's The Accidental Prime Minister andPCParakhs Crusade or Conspirator was obsequious andservile to say the least and went on to confirm the unwrittenwrit of the Ambanis. In 1998 Hamish Macdonalds book onDhirubhai Ambani-the Polyester Prince was not sold in Indiaand later reappeared after some years minus a few keychapters: the result of the Ambanis being chary of any kindof criticism. It is against this background also that the mediaincarceration of Arvind Kejriwal and subsequent failure at thehustings needs to be seen. Readers must be intrigued, naybemused what calls to script and make this kind of laundrylist on the Ambanis .Quite simply, all these events have beenin the news and out of it. The public still need to be told bywhatever means possible to see the connects between thestories, the power of the deceit and fraud of the corporateagainst public interests that are committed regularly with theknowledge, sanction and active collusion of political parties,ministers like Moily, Satish Sharma and Deora and pliantsenior bureaucrats and technical officials. The case forconscientious objectors in politics and authority wouldrightfully go to also former ministers such as Mani ShankerAiyer and Jaipal Reddy in this regard. Exploring oil is a costlyenterprise. But it is a national resource. How much of it isavailable today, what should be its rightful price both forexploration and selling, who should be doing it as a privateplayer are all questions that the Indian public have a right toknow. And in that if a certain Ambani, gold plated the prices,bought and poached away talent from pristine governmentalinstitutions to cause their ruin and manipulate prices forunfair advantage through compromised people in authority,then matters are grave that call for the highest scrutiny andconvictions as the case might be.It is for the public therefore,to determine the real patriots and heroes and call to book thenew-traitors who pass off as nation builders instead.

reply

chirag

15 July 2014

agree with your views in most parts, but don't take thebleeding hearts at face value. what we need is proper andeffective regulators. its a matter of time before the gas prices



16:00 PM are revised, hopefully its not close to $8.40, and will blunt theKejriwal argument of this being Adani Ambani ki sarkaar.

reply

Anon

05 July 2014

20:29 PM

Congress is the most corrupt party in India. It's cronies will doanything to loot money. Not that BJP is saint., but whateverthe good BJP does in this five years and set right somethingand these fruits will be again eaten by Congress cronies ifthey are reelected nxt time

reply

agnostic

26 July 2014

15:44 PM

Utter crap. The BJP is as corrupt if not more corrupt than theCongress. In addition, the BJP is thoroughly incompetent andhugely communal.

reply

Le a v e Co mme n t

Name: * Email: * email addresses will not be disclosed

What code is in the image?: *

Save

Copyright 2014 The Caravan. All rights reserved

Terms of Service

Privacy Policy

About Us

Masthead

Submissions

Copyright Policy

Careers

Contact Us

Store Locator

Follow us on

Facebook

Twitter

YouTube

Rss

Current Issue

Archive

Reporting & Essays

Opinions

Books

Arts

Fiction & Poetry

Subscribe

Rigged _ The Caravan - A Journal of Politics and Culture.pdf

Documents

Transcript of Rigged _ The Caravan - A Journal of Politics and Culture.pdf