Rig-A-Deal?

FOR nearly three years now, privatised offshore oil and gas fields at Panna and Mukta in the Arabian Sea were producing oil and gas unhindered. But a recent writ petition filed by the Centre for Public Interest Litigation and the National Alliance for People's Movement threatens to stir up a hornet's nest. The petition alleges many irregularities in the contract awarded to a joint venture between Enron Oil and Gas (30 per cent), Reliance Industries (30 per cent) and ONGC (40 per cent) to produce and sell oil and gas from these fields. The basic contention: that Reliance bribed then petroleum minister Satish Sharma to wangle a deal that would cause a "loss of several thousands of crores to the public exchequer".

The petitioners based their arguments on a report (file no 1/636/95) which Y.P. Singh, then SP, anti-corruption unit, CBI, Mumbai, submitted on January 16, 1996. The CBI has claimed in court that the file doesn't exist.

The Facts:In August '92, the Ministry of Petroleum invited bids for developing 12 medium-sized and 31 small-sized discovered oil/gas fields to reach it by December '92. These included Panna and Mukta, which were then on long lease to ONGC. ONGC had already spent about Rs 746 crore on exploration and other activities here over 17 years and was producing and selling oil to the Government of India at an administered price, which Singh's report claims was $8 per barrel. The government later extended the last date for bids to March 31, '93. Five medium-sized and 13 small-sized field contracts were executed by December '94. Of the five, four—Panna, Mukta, south and mid-Tapti—went to the Enron-Reliance-ONGC joint venture (JV) while the fifth, Ravva, was awarded to the Videocon-Command Petroleum-Ravva Oil Singapore Ltd tie-up on 25-year leases.

Bid Violations:The Comptroller and Auditor General (CAG) report on the project found the whole bidding process strange. No comparative economics of developing specified oil fields on JV basis vis-a-vis ONGC or OIL developing these fields by themselves were done before awarding the contract. The oil reserves estimate kept varying at different stages in different government documents. The bids were finally evaluated on the basis of the lowest of these estimates and not on those given in the tender document.

The CAG report found the notice inviting bids unclear and ambiguous. It is not clear if all the bids were received before the last date of March 31, '93. Interestingly, the extension was done

retrospectively, on March 31 itself . No record was kept of the identity of officials present when the bids were opened;none of the bidders was allowed to attend.

Contract Inequities: The CBI report points out that the production sharing contract between the ministry and the JV, whereby the ministry gets a share in the oil produced, does not provide for the reimbursement of the costs—Rs 746 crore with a net present worth of Rs 2,000 crore today—ONGC had incurred to develop Panna and Mukta, even though this reimbursement was "one of the important criteria for bid evaluation". Strangely, at Ravva, on which ONGC had spent much less than on Panna and Mukta, it is being reimbursed to the tune of $55 million (about Rs 200 crore).

The Petroleum Ministry, in its reply to the writ petition, says the Rs 746-crore figure is "on the basis of undepreciated method of accounting". These investments should be depreciated to get the far smaller amount that is currently relevant.

The petitioners, drawing from the CAG report, state that with the current formula being applied, the government's share will vary between 5 and 10 per cent when the oil taken by governments in most countries from international oil companies comes to 80 to 90 per cent. Singh of the CBI calculates that even at the maximum achievable margin of about 33 per cent, returns would be just 5 per cent. The ministry, however, states that taking into account the duties, production share, corporate income tax and such like, the government's share would end up adding to over 80 per cent of the revenue, close to the petitioners' figure.

The petition says in 25 years, the JV will produce nearly 31.35 million metric tonne of oil (according to ONGC estimates) worth nearly Rs 17,000 crore. For this opportunity, it is paying the government a signature and production bonus of only $3.6 million (about Rs 12 crore), that too over 20 years.

The ministry says the Rs 17,000 crore worth of reserves is an inflated estimate. Taking into consideration the cost of development and production reduces this to Rs 13,338 crore. The reserves, according the ministry, are not 31.35 mmt, but less than half that, as determined by a 3D seismic survey done in '92. Using this estimate, the ministry calculates that the JV will eventually net only Rs 1,442 crore over 25 years while bearing an expense of Rs 1,247 crore in the initial two to three years. The ministry, however, has not explained why the 31.35 mmt figure was used while calling for bids, while they were evaluated using the less-than-half figure.

The Price of Oil:This is probably the biggest issue. The CBI report alleges that the JV is being paid a premium of $4 over international crude oil prices or between $20 and $24 per barrel when the ministry had stated that payment would be made at international prices. Compare that to the $8 price paid to ONGC which had made an investment earlier unlike the JV. The CBI report puts "the loss to the public exchequer on account of this contract" at Rs 7,505 crore.

The royalty and cess payable by the JV was frozen in March '93 for the entire 25-year period. This when ONGC had to pay the same as per prices announced by the government from time to time. And while the national oil companies pay customs duty and other taxes on sale and income through petroleum at government-determined rates, these have been waived for the JV. The CBI report calls the whole deal "near to a sellout" and "a sacrilege of propriety". The ministry claims "no premium in price is being paid", and that the price the government is paying for the crude is 10 cents lower than Brent, a well-traded, similar, good quality crude. It states, for instance, that in June '97, it paid $18.969 per barrel.

 But, strangely enough, Dow Jones data on Brent crude for June '97 gives the average daily closing price as $17.57. And Enron Oil's mandatory financial statement filed with the US' Securities and Exchange Commission on August 15, '97, says the JV was paid $22.99 per barrel in the first quarter of '97—the highest rate it received from all such operations across the world.

The Bribes: In October '96, B.N. Safaya, additional private secretary to Satish Sharma, told the CBI that Sharma received Rs 4 crore from Reliance (Rs 1 crore each in June '93 and October '93 and Rs 2 crore in December '93). He also said Videocon, the successful  bidder for Ravva, paid Rs 1 crore in July '93 and October '93. Sharma would inform Safaya about who would be coming with how much money; Safaya would receive them, check the cash, and drop off the suitcases at Sharma's farmhouse outside Delhi. Part of this money, the CBI suspected, went to the Jharkhand Mukti Morcha MPs who saved the Narasimha Rao government in a 1993 no-confidence motion. Safaya has since retracted his statement.

Data Piracy:One of the reasons the ministry cited for choosing the Reliance-Enron bid was the combine's "in-depth analysis of (oil and gas) reserves using latest 3D seismic techniques". The CBI report wonders why any bidder would incur this huge expense unless he already knew that he would be getting the contract. The report points out that ONGC had already conducted the 3D technical survey. Also, at least two top ONGC officials quit to join Reliance and Enron while the bids were being negotiated . ONGC chairman M.L. Khosla joined Reliance in June '93, while A.B. Mehrotra, member, exploration, joined Enron months later. Singh's report says "it is suspected that through their services, there was some piracy of data which was used by the JV for purpose of showing that they were technically superior." Y.P. Singh, who wrote the

The Investigation: report and suggested there was enough to lodge a criminal case, was prematurely repatriated to his state cadre. In May '96, a preliminary inquiry was registered, but in the Bank Securities and Fraud Cell in Delhi not the anti-corruption branch in Mumbai CBI.

These facts and the many areas the ministry's response has not touched leave a lot of questions unanswered. As petitioners file their counter reply this week, the issue will open up to minute dissection. And the government and the Petroleum Ministry could have a lot more explaining to do.