ONGC's Nagaland operations are in the dock. In Assam, it's not doing well either. Why?
ASSAM has long been proud of the fact that crude oil in India was first discovered in the state's eastern part way back in 1880s. That proud legacy has, however, now turned into a nightmare for oil-producing companies, especially for the Oil and Natural Gas Corporation (ONGC). Thanks to mounting insurgency in the region, these companies are working under tremendous pressure—and there's already been a decline in crude production, and huge losses.
And nothing illustrates ONGC's plight in the Northeast better than the fate of its operations in Nagaland. After initial exploratory efforts in the mid-'80s, production began at the Champang field in the state in March 1991. In less than a year, ONGC officers and staff were faced with threats to their lives by the banned National Socialist Council of Nagaland (NSCN), the state's powerful insurgent group. A deputy general manager of ONGC, posted at Dimapur, was shot at and injured, spreading panic in the ranks. In the next two years, several attacks on ONGC and Central Industrial Security Force (CISF) personnel made life difficult for those posted in this sector. By March 1994, ONGC was served with an ultimatum by the militants demanding payment of Rs 1 crore for "extracting and exploiting a scarce resource of the Naga Republic".
Simultaneously, the powerful Naga Students' Federation (NSF) asked ONGC to close down the operations. Its contention: under the provisions of Article 371 A of the Constitution, ownership of natural resources within Nagaland lies with the people, and hence ONGC has no right to extract crude from the oil fields that fall under the state's geographical jurisdiction. Unable to ensure foolproof security and bowing to the pressures from NSF and NSCN, the Nagaland government ultimately asked ONGC to cease operations in the state in May 1994. When ONGC withdrew from Nagaland, it had already produced 1.04 mmt (million metric tonnes) of crude. In fact, the oil wells in Nagaland were producing crude at the rate of 250 tonnes a day, a healthy rate even under normal circumstances.
Says K.K. Jagati, regional director of ONGC's Eastern Regional Business Centre (ERBC): "The prospects of oil fields in Nagaland are very high. The quality of crude is also good but unless the issue of safety to our personnel and the question of payment of oil royalty is settled by the Nagaland government, we are not in a position to resume operations there." Although Nagaland chief minister S.C. Jamir and ONGC CMD B.C. Bora have held talks on the issue in recent months, nothing concrete has emerged out of the parleys so far, Jagati told Outlook. Till a way is found to resolve the impasse, ONGC, according to one estimate, would continue to lose something like Rs 36 crore annually in unproductive investment made in Nagaland. As it is, the ONGC oil rig, valued at over Rs 15 crore, has been stripped and parts of it sold in scrap in the intervening years since 1994.
Nagaland, of course, is only a small part of ONGC's eastern region operations. In Assam, where most of its productive oil wells are located, ONGC faces a multipronged crisis. As Jagati, who took over as regional director in February, says: "The biggest problem that we face in Assam is the high level of expectations from the people. Everyone here, politicians, local people, contractors and militants look at us as a kamadhenu, to be exploited to the hilt whenever possible."
FOR instance, ONGC is expected to build infrastructure like roads and culverts in areas where it has its wells located. "To a certain extent, building roads up to the well site is beneficial to us also but it becomes unbearable when unreasonable demands start pouring in," Jagati says. In a typical example, people in and around Panidihing in upper Assam's Sibsagar district have blockaded the approach to an ONGC well site for the past couple of months. Their demand: construction of a tar road. The impasse continues and ONGC keeps incurring a loss to the tune of Rs 2.5 lakh a day.
"We are expected to fill in for the state government, whose job it should normally be to provide roads for the people," remarks N.N. Taye, general manager (personnel and administration), ERBC. Taye should know. Over the past 15 years, Taye, an Assamese himself, has been dealing with similar problems head-on.
The biggest menace, of course, is the insistence of local contractors on doing the jobs available with the ONGC all by themselves. As a senior official points out, the "locals-must-have-the-first priority" syndrome is carried to such extremes that a native of Sibsagar (the district headquarters) will not be allowed to work in Nazira (a sub-divisional town) some 25 km away from Sibsagar. "Most of these contractors do not have the required skills needed to do some highly technical jobs and yet they would insist on taking up the contract. Once we give them the job, the projects are delayed, ultimately hampering oil production," Jagati laments.
Then there are bandhs called by all and sundry to contend with. "A one-day closure of operations due to any bandh sets us back by seven days since it takes a long time to resume drilling," says a senior production official. Floods, excess manpower and high security expenditure also contributes to the ONGC's woes. Under the ERBC, ONGC spends nearly Rs 14 crore annually on security-related expenditure. In comparison, security expenses in other business centres would be less than 50 per cent of this figure.
Apart from these extraneous factors, ONGC's production in the eastern region also suffers because it is saddled with ageing wells, some of them as old as 38 years. Says Jagati: "Nearly 60-70 per cent of our wells are ageing. The cost of lifting oil from these old wells is higher than normal." Naturally, ONGC's output has been affected. For ERBC to break even, it must produce at least 2.9 mmt of crude annually. For the past five years, the production of ONGC crude in the eastern region has not gone over 2.4 mmt. In comparison, ONGC rival Oil India, which owns a lot of new wells in the Northeast, has been doing much better. In 1994-95 for instance, OIL produced 2.8 mmt of crude compared to ONGC's 2.195 mmt. In 1997-98, the gap increased further with OIL's crude production touching 3.07 mmt against ONGC's 2.04 mmt.
There is another major reason for the difference in the production figures of ONGC and OIL. Old-timers in the oil industry point out that the difference between ONGC and OIL lies in the way people perceive the two giants. OIL, for instance, is seen as a more "localised" company with its culture firmly rooted in the initial efforts in oil exploration in the state which began in 1888. OIL also has more Assamese officials in its higher echelons. Its headquarters, for instance, is located at Duliajan in Assam.
In contrast, ONGC is seen as an outsider, manned by people from outside the region, and headquartered at Dehra Dun, of all places. In fact, this contrast between the images of the two oil giants was starkly demonstrated in 1991 when militants of the banned United Liberation Front of Asom (ULFA) abducted and killed two ONGC officials but did not touch their OIL counterparts in the same region.
Fact is, the overall crude oil production in the Northeast would continue to stagnate unless the situation improves on all fronts. And if the output does not go up, a new three million tonne capacity refinery at Numaligarh, scheduled to go on stream next March, would face a major supply problem in the years to come.