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Business News/ Industry / Energy/  Panna-Tapti: Leaking fields?
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Panna-Tapti: Leaking fields?

A history of the oil and gas fieldsfrom its birth out of a World Bank compulsion in 1991 to privatize natural resources to CBI probe into RIL owning it

Photo: AFPPremium
Photo: AFP

In many ways, the history of the Panna-Mukta and Tapti oil and gas fields captures the changing face of the Indian economy and polity over the past two decades. It was born out of compulsion—the World Bank had pressured the government to privatize natural resources as a reform measure in the wake of the 1991 balance-of-payments crisis. It had a troubled childhood, facing an enquiry by the Central Bureau of Investigation (CBI) and weathering a legal battle that questioned the validity of its award to the Reliance Industries Ltd (RIL)-led consortium. Now the government is trying to claw back, claiming that it has got a raw deal.

A BRIEF HISTORY

Fact sheet

n Contractors: RIL (30%), BG India (30%)and Oil and Natural Gas Corp. (ONGC-40%)

n Age of development contract: 20 years over (signed in 1994), five to go.

n Money spent: $5.3 billion

n Profit Petroleum (PP)* earned by contractor: $10.38 bn

n PP earned by government: $1.92 bn

n Where estimates went awry: Panna fields

DROWNED IN LITIGATION

Government’s claim

n $5.6 billion: $3.7 bn in Panna-Mukta and $1.9 bn in Tapti towards loss in production owing to non-completion of work programme.

n $443 million: says contractor has claimed recovery of income tax at flat 50%, instead of actuals, which are much lower.

n $78 mn : Audit related notice

Contractors’ claim

n $80.12 mn: Govt withheld this money following audit for the period 2002-2005

n $427.5 mn: recovery costs—$365 mn in Tapti and $62.5 mn in Panna-Mukta, citing change in international market and variation in development plan.

WHAT IS GOOD FOR RIL CONSORTIUM IS BAD FOR THE GOVT

WHAT THE GRAPH SAYS

Poor defence

To understand why the government’s share of PP is modest, first let’s look at the design of the Production Sharing Contract:

n IM rises when revenues from the field go up—either by virtue of higher production or higher gas price or both

n IM is dragged down when investments are made by the contractor. To be sure, it reaps higher production, but that comes with a lag. Hence, the rate of investment is as relevant as volume of investment.

n Now, let’s look at the playout: After a breezy investment kick-off for the first five years, there is a virtual stall for three years, only to pick up with renewed vigour at over twice the original levels for the next seven years. At the end of this period, in 2011, IM reaches the 2.5 mark, translating to a 25% share for the government.

n This staggering is not exactly efficient from the government’s perspective. For instance, if the 2.5 mark kicked in a year before, the government would have gained as much as around $130 million, as its earnings would have risen from 15% to 25%.

A TALE OF TWO DEALS

In many ways, the two deals—PMT fields and Ravva fields—are similar. Here’s why:

n Both were part of the Notice Inviting Offer (NIO) by the government in 1992 soliciting private participation.

n Perversely enough, both suffered from the same problem—gross under-estimation of reserves; in the case of the prolific Panna fields, gas production has proved to be over three times the original estimates. In the Ravva fields, which predominantly produces oil, the production has turned out to be three times the original estimate. Such an aberration is difficult to comprehend since ONGC had discovered hydrocarbons in these fields before they were auctioned to the private sector.

n Both contracts were signed within a few months of each other, in 1994.

Yet, the PP shared with the government is only contrasting—Ravva has returned to the government over three times what PMT has yielded. Partly, it has to do with the fact that oil yields more than gas. But there is more to it.

1. First, the terms of profit share offered by the Ravva were far more aggressive.

2. Second, the contract terms offered by the government. For instance, the PMT joint venture got three development platforms worth around 600 crore, a large sum in 1995, virtually free of cost. The bill was picked up by ONGC, the former owner of the fields.

3. This was not the only controversy.

Civil society highlighted the career moves of two key officials in ONGC involved in the NIO preparation in 1992. Chairman S.L. Khosla and member, exploration, R.B. Mehrotra. who joined RIL before the PMT contract was signed in 1994. In itself, it would have meant little, given the structure of competitive bidding. But with the Comptroller and Auditor General coming down heavily in the past on the under-estimation of reserves by ONGC, the controversies have refused to die down.

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Published: 22 Jan 2015, 01:08 AM IST
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