Friday, October 9, 2009

KG Blocks and India's Dilemma - Indian saga of Oil and Gas

Lacks of Indians are working in Gulf countries; Middle East Asian countries are very wealthy; Russian economy is still working; Venezuela is powerful; Malacca strait is a vital for China and East Asian countries; Exxonmobil, Shell etc are numbered among the biggest companies in the world. These all statements have one thing in common, all are related to Oil and Natural gas. In the economic jargon it can called as petrodollar phenomenon.

In India too there are some big blocks of crude oil and gas like the Bombay High run by ONGC, KG Basin etc. It may be the ambition of every finance minister of India to reduce the oil bills.

It is in this background government gave exploration licenses to private companies like Relience Industries and public sector behemoth ONGC etc(Earlier only ONGC was allowd to explore fo the oil and gas). It was expectd that if we discovered some major oil field, then we can save some billions of dollors flowing out in every year.

Expectation full filled and many new oil blocks(commercially viable) were discovered. Oil and Gas blocks in Krishna-Godavari basin discovered by Relience Industries was the biggest in the chain. They developed it in record time and Production started. Upto this time everything went fine. But after the discovery disputs arised between RIL, RNRL and Oil ministry. Everyone have their on arguments and counter arguments and the washing machine went on publically in full swing(after all its the matter of billions of dollors).

Cases are filed in the courts, verdict came again appeal came and the chain moved on. For a number of days public saw a new serious of 'Tom and Jerrey' fight free of cost. People of great Indian democracy starts to read n number of stories relating to KG basin contracts in news papers. Dispute is still on and no one expects it will end soon, but public may lose the interest.

What is the stake of common man here? You can say that billions of dollors will be saved and this money can be routed for the building of infrastructure, social empowerment blah blah blah. Common man will have more job oppertunities and more income.

If you believe in all these things, i want to introduce you to an old syndrome, popularly called Dutch Syndrome -
"The theory is that an increase in revenues from natural resources will deindustrialise a nation’s economy by raising the exchange rate, which makes the manufacturing sector less competitive and public services entangled with business interests"
In otherwords it can be interpretted as - its not necessary that the exploitation or discovery of major natural reserves will lead to prosperity of citizens. lf it is happening in that way, then Nigrieans will be one of the most whealthy people in the world, people of Venezula may start to visit all the tourist places in the world. Many African countries will be in the list of most devloped nations. But it didnt happen.

The disputes between the parties RIL, RNRL, Oil Ministry and NTPC seems like a never ending seriel. But these disputes will be very costly for India, it will affect India's image globally. If companies have to face this much difficulty even after finding a major resource then how many foreign companies will come to India for exploration of Oil? The companies like Exxon Mobil, Shell and Chevron etc which also have deep water exploration expertise will think twice before coming to India.

Its not for the first time oil and Gas are discovered in the world, this happened in many countries and successful contracts and profit sharing agreements were signed leading well developed long time mechanism.

Oil and Gas is a long term business, were you have to spend millions of dollors for exploration in places where you are not sure about the result. In order to transform a deep water discovery in to production it requires huge amount of investment and technical expertise. The profit will come only after a decade or two.

If government cant resolve the questions regading to profit sharing, production sharing agreement then how they will solve other problems? It not about the absence of oil reserves, neiter about the technical expertise but about pen and paper, about how to write sentences in a contract!!!


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