India's oil safari adds fuel to the
fire By Raja M
MUMBAI - On
April 20, British firm Cairn Energy declared its third
successive oil strike in India's desert state of
Rajasthan, one of the largest oil finds in the world
this year. India, the world's sixth-largest energy
consumer, could do with similar buried treasures. The
country imports 70 percent of its crude oil demands.
As with other large economies, the energy
question and hangs over India like an edgy executioner's
ax. The American Department of Energy's Energy
Information Administration (EIA) projects strong
economic growth in Asia doubling world oil prices to $51
a barrel in the next decade. China, India and other
developing countries will see a 91 percent jump in needs
as these countries pursue rapid industrial development,
says the EIA.
India faces a shortfall of 300
million tonnes of oil by 2025, according to estimates
based on projections from the Hydrocarbon Vision 2025, a
prime ministerial paper to study India's future oil
needs. India's state-owned Oil and Natural Gas
Corporation, ONGC, which owns 30 percent of the Cairn
finds in Rajasthan, produces 77 percent of India's
domestic crude oil. Oil accounts for over 30 percent of
India's total energy consumption.
With domestic
sources filling only 30 percent of demand, oil hunting
abroad has already landed India in dubious waters.
Through ONGC Videsh Limited (OVL), the overseas arm of
ONGC, India has cut deals with a who's who of
controversial (we are being polite here) governments:
Sudan, Iran, Iraq, Libya and Myanmar. Besides those
deals, India made its largest ever-overseas investment
of US$1.7 billion in Russia's Sakhalin Island, and has
interests in the South China Sea.
This April,
India declared plans to buy 50 percent of financially
scandal-ridden Shell's stakes in Angola, a country
facing a refugee and food crisis after 30 years of civil
war. The $600 million deal could be finalized later this
year. Given the complexity of oil exploration deals in
trouble spots abroad, such deals rarely receive
sufficient public discussion in India.
OVL,
India's largest corporate with a market capitalization
of $11.3 billion last fiscal, has nine overseas assets
and wants more. India invested nearly $1 billion in
civil war-stricken Sudan, buying the Canadian company
Talisman Energy's 25 percent stake in the Greater Nile
Petroleum Operating Company near the Sudanese capital
Khartoum.
India was making a "fateful mistake",
warned rebels of the Sudan People's Liberation Army
(SPLA), when the deal was struck in 2002. About 2
million people have died since civil war broke out in
1983 in Sudan. A report by Brussels-based think-tank
International Crisis Group said that oil revenues
allowed the Sudanese government to purchase more lethal
weaponry and increase its air power. A shaky peace
accord, following an oil wealth sharing agreement with
the SPLA, crumbled earlier this April, with the Sudanese
Air Force allegedly using attack helicopters to bomb
villages in Darfur in northwest Sudan. The Sudanese
government denied the charge of ethnic cleansing in its
villages. The United Nations, however, says that over
10,000 people have been killed and approximately 1
million people displaced, with 95,000 fleeing to
neighboring Chad.
India, like Malaysia, has not
allowed the question of human rights to affect its oil
business with a government accused of causing such
suffering. Indian petroleum minister Ram Naik blithely
expressed, at the announcement of the deal in 2002, that
his priority was to get equity oil. So never mind the
United Nations accusing the Sudanese government of
"widespread atrocities" against its own people. Indian
President Abdul Kalam's visit to Khartoum last October
boosted bilateral trade, during what seemed to be a
peace process. But the renewed violence in northwest
Sudan this month went largely unnoticed in India, a
glaring omission considering India had made its second
largest ever overseas investment in that country.
"We believe there are significant risks in the
Indian government investing heavily in countries like
Sudan, Libya and Iran," says Sundeep Bhandari, director
of Petrodril, a consultant to Cairn. "Returns on these
projects will come after several years, and in some
cases we are already hearing that there will be overrun
of capital costs. India may be better off in buying in
the spot markets and importing from sources that are
more cost efficient."
An OVL vice president
telephoned this correspondent and ridiculed the idea
that India would be doing better in the spot market
(where a commodity is bought or sold for delivery
immediately or in the very near future). "It's better to
be a producer of oil as ONGC is doing, rather than
shopping for oil," he told Asia Times Online, asking not
to be named, elaborating that investing in equity oil
helps to tide over unexpected crises.
Jephraim
Gundzik, president of the California-based world market
analysts Condor Advisers Inc, agreed with the ONGC
strategy. "Rather than sourcing all its needs from the
spot market, I think India would be better off investing
in projects overseas similar to China investing in
Central Asia," Gundzik said. "As India's oil demand will
accelerate in a few years, it's very sensible to invest
in overseas projects despite the long build-out period."
Three million tonnes of oil from Sudan reaches
India, the senior OVL official said, and declared that
any problems in Sudan are the internal matter of that
country. "Don't write anything against OVL," he urged.
"We are bringing equity oil to India and we are certain
that our investments abroad are safe and secure." OVL
aims to get 60 million tonnes of oil a year from abroad
as equity oil by 2025.
To increase domestic
sources, ONGC on August 3 last year announced deep sea
project "Sagar Samriddhi" (sagar meaning ocean,
samriddhi meaning self-sufficiency) to hunt for
hydrocarbon reserves in the Arabian Sea and the Bay of
Bengal. The $2.6 million-a-day mission hopes to find
about 11 billion tonnes of oil. ONGC hopes that if it
could produce one-fourth of these reserves, India would
have 1 billion tonnes of oil and oil equivalent gas over
25 to 30 years.
Other state-owned Indian
companies want to expand their overseas roles. Last
week, the Indian Oil Corporation (IOC) declared plans to
invest up to $2 billion for acquiring an overseas
exploration company. Unlike OVL, IOC has been restricted
by a governmental norm that needs the Public Investment
Board and the Indian cabinet to approve any investment
exceeding $45.2 million.
An oil ministry
official told Reuters that IOC was assessing
medium-sized exploration and production firms in
Britain, Canada and Australia - more credible options
than cutting oil deals with military dictators and
despots accused of genocide. As India steps up a gear to
quench its oil thirst, this quest needs much closer
public scrutiny, and more debate than it seems to be
getting.
Raja M is an independent
writer based in Mumbai, India.
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