New Delhi: National oil companies should ensure that their returns justify investments, finance minister P. Chidambaram said on Wednesday. He also urged oil-producing nations to sell crude at reasonable prices.

Emphasizing the need for investments to create world-class infrastructure, Chidambaram asked the firms to be diligent and make commercially sound investments.

Chidambaram’s statement comes in the backdrop of ONGC Videsh Ltd (OVL), the overseas arm of Oil and Natural Gas Corp. Ltd (ONGC), struggling with the UK’s Imperial Energy Corp. Plc., which it acquired in 2009.

“Oil companies should make investments with justifiable returns," Chidambaram said at Petrotech 2012, the biennial international oil and gas conference organized by India.

State-run firms such as ONGC Videsh, Oil India Ltd, GAIL (India) Ltd, Indian Oil Corp. Ltd, Bharat Petroleum Corp. Ltd and Hindustan Petroleum Corp. Ltd have invested around $13 billion (around 68,640 crore today) on acquiring energy assets overseas.

Production from overseas energy assets contributes around 10.5% to India’s production of 90 million tonnes of oil and gas.

ONGC paid $2.1 billion in 2009 to tap Imperial Energy’s Siberian deposits as part of the country’s efforts to secure overseas energy assets.

While peak oil output from the Siberian fields was estimated at 80,000 barrels per day (bpd) by 2011 at the time of the purchase, it was lowered to 45,000 bpd, Mint reported on 17 June 2010.

The field is currently producing only around 15,000 bpd.

The Comptroller and Auditor General of India (CAG) in a report last year found fault with the acquisition of Imperial Energy. The government’s auditor said ONGC Videsh incurred a loss of 1,182.14 crore between January 2009 and March 2010 due to its inability to achieve the estimated oil production. Its “prediction for production levels was highly optimistic rather than realistic", the government auditor said.

Commenting on rising oil prices and its effect on the global economy, Chidambaram said high oil prices were pushing oil-consuming economies to the brink of bankruptcy.

He said growth and inflation have been significantly affected by the rise in global commodity prices, particularly energy prices. India’s current account deficit has remained high due to the global economic situation and high oil prices have worsened the trade deficit, he added.

Countries such as India that are dependent on imports to meet their oil needs are particularly vulnerable to price volatility. India, the world’s fourth largest energy-consuming nation, imports 80% of its crude oil and 25% of its natural gas requirements. It trails the US, China and Russia, accounting for 4.4% of global energy consumption.

“Widening of the fiscal deficit of India due to high subsidy bill has also affected growth," Chidambaram said. “The single most fiscal risk not only to India but to all developing countries is the burgeoning subsidy bill. While some provision has been made under oil subsidy year after year, we have found that provision is always way off the mark as oil prices are globally determined."

India’s finance minister asked oil producing nations to use a reasonable mechanism to arrive at a reasonable price for crude oil.

India’s suggestion for an oil price band to reduce the volatility in the crude oil market has won the backing of Nigeria, Russia, France, Japan, South Korea and the US.

The price band, proposed by Chidambaram at an Opec meeting in Jeddah, Saudi Arabia in 2008, will help oil producers secure a steady income and protect consumers against abrupt price spikes. While price controls may draw the ire of free market proponents, the proposed band can work in the case of crude oil because any price fluctuation affects economies across the world.

“Innovation, technology and new discoveries will play a part at reaching that price, but, above all, it will require the political will and wisdom of the leaders of the oil-producing countries. I urge you (oil producers) to keep prosperity of all countries as a goal towards which you aspire," Chidambaram said.