great oil gulp
Raha, M.S. Sirinivasan, S. Behuria and N.K. Nayar
Lanka - a convenient energy supplier to India?
Lanka's energy supply is in danger of being almost totally
controlled by its giant neighbour, as India joins China in a
frenzied race for oil and natural gas fields around the globe.
India has now started dichotomous negotiations with the
government of Sri Lanka, which will effectively hand over to
the Indians two thirds of Sri Lanka's petroleum retail sector
and total control of the wholesale sector if successful in its
bid to take over the exploration and development of the
Western Offshore block of Sri Lanka in the Gulf of Mannar.
heightened interest by the Indians comes at a time when seismic
studies and data collection by reputed Norwegian and Australian
firms for positive signs of oil have proved very encouraging. TSG
Nopec, an oil exploration firm is now in its second phase of data
gathering in the region.
Sri Lanka the bid for control by the Indians also comes at a time
when attempts to kick start the lagging peace process is gathering
momentum. With the north eastern Trincomalee oil farm already under
Indian control, the presence of Indian personnel in the Gulf of
Mannar in the north west of the country may prove detrimental to the
shaky peace agreement. As important to Sri Lanka's geopolitics, is
the daunting prospect of India's possible control of Sri Lanka's
the strategic importance of the Trincomalee oil farm project was the
fulfillment of a 15-year-old objective in the Indo-Sri Lanka
agreement to keep 'outsiders' out of the Indian Ocean for India, the
objective remains very real. The importance of Sri Lanka and
Trincomalee cannot be underestimated given the uncertainty over the
peace process. The security situation in the north and east of the
island remains highly vulnerable especially with the UPFA government
on the brink of a split over the government statement that it was
ready to start direct talks with the LTTE based on the interim
India would certainly want to maintain a significant presence in
Trincomalee and other parts of the country if possible for regional
and international geopolitical reasons. India would not want another
multinational petroleum major to set up shop at this strategic
early as November 2004, Chairman and Managing Director, Oil and
Natural Gas Corporation (ONGC), Subir Raha had indicated to Indian
media that he hoped an agreement would be signed shortly with Sri
Lanka allowing the corporation to take up oil exploration off Sri
coming events were casting their shadows as far back as December
2004 when Indian High Commissioner, Nirupama Rao personally handed
over an original proposal by ONGC Videsh Limited (OVL)for
Exploration and Development of the Western Offshore Block of Sri
Lanka in the Gulf of Mannar region (see map) to Minister of Power
and Energy, Susil Premajayanth on December 23, 2004. She was to
diligently follow this up by holding a conversation on the matter
with Senior Presidential Advisor Mano Tittawela on January 13, 2005.
She then promptly sent him a copy of the proposal reminding him that
the original had already been sent to Premajayanth.
diplomatic channels are being used by New Delhi to secure a
negotiated contract for ONGC is nothing new. Diplomats have long
since wheeled and dealed to secure contracts for their countries.
Traditionally, rising economic powers at any given time would seek
to secure energy supplies around the world.
with oil exploration by India and China going on in states like
Sudan, Vietnam, Russia, Iraq, Iran, Lybia, Syria, Myanmar, Australia
and the Ivory Coast, the political dynamics of the world oil market
is evident is that India is keen to take on the mantle of a
neo-colonial power in the region. When the tsunami struck, India was
not seen with a mendicant's bowl despite its own losses. It acted as
a donor and within hours dispatched supplies and army personnel to
Sri Lanka. And petroleum and natural gas is a good resource to
Oil and Natural Gas Corporation (ONGC) is India's largest corporate
by market capitalisation and net profit as well as its first
integrated oil and gas major. ONGC Videsh Limited (OVL) is a wholly
owned subsidiary of ONGC and is engaged in exploration and
production of oil and gas outside India.
OVL proposal was the outcome of a meeting between a Sri Lankan
delegation led by Weerahendi and the ONGC Videsh Ltd (OVL) held on
November 18, 2004 in Colombo where after discussion, the Sri Lankan
delegation invited OVL to submit a comprehensive proposal for the
exploration and development of Western Offshore Block of Sri Lanka
in the Gulf of Mannar region. According to the proposal, the
exploration will be carried out in three phases spanning seven
Indian High Commission in Colombo told The Sunday Leader that India
is interested in prospecting for oil in Sri Lanka and confirmed that
ONGC Videsh Limited is currently holding discussions with the
Petroleum Resources Development Committee (PRDC) of Sri Lanka with
regard to oil exploration.
it is not the first time ONGC has shown interest. During the UNP
administration, ONGC and India showed an intense interest but the
ONGC offer on a negotiated basis was rejected by the PRDC and the
Ceylon Petroleum Corporation (CPC), as it was clearly not in the
best interests of Sri Lanka.
UNP administration rejected the ONGC offer on several grounds.
The ADB in its Technical Assistance (TA) agreement with Sri Lanka
for the promotion of private sector involvement in oil and gas
exploration signed in 2000 states that the development of a
country's natural resources and the best outcomes are normally
achieved through informed, prepared, competitive, and transparent
transactions. The ADB reserved the right to suspend TA amounting to
US $325,000 if deals were made with groups that presented
T.S.G.Nopec Agreement signed with Ceylon Petroleum Corporation (CPC)
at a time when there was hardly any interest in oil prospecting in
Sri Lankan waters states they should have the opportunity, having
undertaken the survey at an enormous cost and risk to themselves, to
sell the data gathered by them to anyone bidding for exploration
blocks. An attempt to deviate from a transparent process could
therefore have legal implications.
delegations which undertook promotional campaigns in Houston,
Denver, Salt Lake City, London and a few other cities gave firm
assurances that they could all bid for exploration blocks in an open
and transparent process.
Petroleum Resources Act of 2003 also envisages that the exploration
blocks be awarded in an open and transparent manner.
in their attempts to secure the deal on a negotiated basis rather
than through a transparent bidding process during the UNF
administration, the Indian government and the ONGC have been working
like beavers to secure the deal on a negotiated basis through the
Chandrika Kumaratunga administration. Intense pressure is obviously
being applied by India through its senior diplomats. Consider - its
High Commissioner personally hands over the proposal to the Minister
of Power and Energy and also writes on January 13, 2005
confidentially to Senior Presidential Advisor, Tittawela on the
ONGC attempting to secure the contract on a negotiated basis becomes
even more ridiculous as it is seeking a privilege it is not even
afforded in its own country. In India, the director general of
hydrocarbons (DGH) acts as a strict regulatory body under the
Ministry of Petroleum and Gas. It has what is known as a New
Exploration Licensing Policy (NELP) that releases blocks for
exploration on a strict open bidding process that is fair and
transparent. Surely there is an irony in the fact that the Indian
government that has set up such an exemplary process in India, is
seeking to obtain by unfair means an advantage in Sri Lanka.
the same cannot be said of Sri Lanka. The very fact that this
government is secretly holding discussions with one company rather
than opening up the process in a transparent manner is not only
suspect but also detrimental to the nation for a variety of reasons.
Not least of which is that Indian companies that already dominate
the petroleum distribution industry could also dominate the
exploration and production industry as well.
the Indians we learn have now nominated ONGC to supply petroleum
products to the CPC on the US$150 million credit line supplied by
them. Reportedly, a paper has been presented to cabinet for
approval. However sources say that premiums offered for the said
products by the ONGC are much higher than what the CPC could buy on
the open market on spot tenders. Thus while offering attractive
credit terms on the one hand and nominating the ONGC to supply
products on the other, India is merely gaining on the roundabouts
what they lose on the swings.
diplomacy so intricately intertwined with economics and power play,
one is perhaps prompted to wonder why during the latter stages of
the UNF administration the Indian government and especially its then
High Commissioner Nirupam Sen withdrew his obvious early support to
the administration in power and in the latter stages openly backed
the Kumaratunga-led opposition.
it was at these crucial stages in Sri Lanka's politics that many of
the petroleum deals were being discussed. Not only with regard to
oil exploration but also with regard to the petroleum retail sector.
that the Public Enterprises Reform Commission (PERC) conceptualised
a model for restructuring the CPC in 2002. They sought to do this by
the formation of a single terminal company called the Common User
Facility (CUF) or Ceylon Petroleum Storage Terminal Ltd (CPSTL) of
which each of the three players will own one third. Out of
approximately 359 CPC-owned filling stations, 100 were formed into a
company called Independent Petroleum Marketers Ltd (IPML), sold to
Lanka Indian Oil Company (LIOC), a fully owned subsidiary of Indian
Oil Corporation (IOC), and another 107 into a company called Modern
Petroleum Marketers Ltd( MPML) earmarked for the third player.
market was to be partially liberalised by allowing only three
players for the first five years in the downstream petroleum
retailing in Sri Lanka competing on a level playing field under a
strong regulatory authority. The third player was to be identified
through a competitive bidding process and the three final bidders
were Hindustan Petroleum Corporation Limited, Bharat Petroleum
Corporation Ltd, and Sinopec (HK) Ltd. Incidentally, both Hindustan
and Bharat are partners of ONGC.
(Hong Kong) Ltd, a Chinese owned company emerged the highest bidder
with US$ 88 million and the Technical Evaluation Committee and
Cabinet Approved Negotiation Committee recommended acceptance of
their offer and a draft cabinet memorandum was prepared seeking
cabinet approval to award the third player license to Sinopec.
However, the memorandum was never submitted due to the political
situation in the country and the results of the April 2, 2004
elections, which brought the UPFA into power.
new government then started negotiations of its own and due to
various pressures perhaps from the JVP and other economically
regressive lobbyists, sought to change the conditions of the bid by
negotiating not for 100% equity in Modern Petroleum Marketers Ltd
but for 49%. Thus the GOSL was to own 51% of the equity.
this was a considerable variation from the original conditions of
the bid, Sinopec (Hong Kong) Ltd. backed out of the process. Bharat
Petroleum remained. In the meantime the Attorney General was to
reportedly give an opinion that the changing of the original bidding
conditions was against tender procedures and illegal. However, when
The Sunday Leader spoke to the Minister Susil Premajayanth, he said
that negotiations were still underway based on a 49 /51%
any event, consider the impact on Sri Lanka's petroleum retail
sector. Of the 359 stations owned by CPC, one third is with the CPC.
Another one third has already been handed over to LIOC. The final
one third may now be handed over to another Indian company. Despite
Minister Premajayanth's assertion that negotiations for the third
player is for a 49 percent stake of the one third share, sources
within the petroleum sector maintain that based on the Attorney
General's opinion, the negotiations reverted to 100% equity in the
one third share.
sources in the industry maintain that the Chairman and Managing
Director of Bharat Petroleum, S. Behuria visited Sri Lanka on
January 18, and signed a MOU with Treasury Secretary Dr. P.B.
Jayasundara as the third player in the petroleum sector, for an
agreed payment of US $ 85 million.
that an agreement has yet been signed is denied by both parties,
with Bharat Petroleum stating to the The Sunday Leader that
negotiations were still underway.
there is a game afoot it is certain. Finance Minister, Dr. Sarath
Amunugama has gone on record to the media declining to comment on
whether Bharat Petroleum is going to be the third player and nicely
avoiding the issue by stating that the final decision regarding
these matters must be taken by the Power Ministry. Ironically,
Minister Premajayanth told The Sunday Leader that since the final
one third share was vested with the Treasury, it is the Treasury
that will make these decisions and not his Ministry.
the implications of Bharat Petroleum coming in as the third player.
would effectively hand over two thirds of Sri Lanka's wholesale and
retail petroleum business to India. In excess of the number of
stations obtained under agreement, they will be able to buy upto one
third from the dealer owned category. Currently, there are some 600
dealer-owned petrol stations in the country. Already the IOC has
bought up over 50 of these private stations by offering better
terms. Minister Premajayanth however estimates the number to be
clean sweep will position India in such a sweet spot that she will
even be able to dictate prices of petroleum in Sri Lanka.
whole purpose of restructuring the infrastructure was to bring out a
competitive environment within a level playing field. However, the
state-owned Ceylon Petroleum Corporation itself will not be able to
compete with such giants as the LIOC and Bharat Petroleum
Corporation who will act in cohorts with each other for the obvious
reason that they are both owned by the government of India and have
directors on their boards common to both corporations.
sector sources also revealed that there is wide speculation that the
Chairman of Bharat Petroleum S. Behuria will assume duties as
chairman, Indian Oil Corporation with effect from March 1, when
current IOC Chairman M.S.Ramachandran retires. This makes the
interconnection between IOC and Bharat even stronger.
look at the board of directors of Indian owned companies in the
industry will show that government officials are often the common
denominators thus interconnecting the bodies to ensure Indian
government control. The Indian Oil Corporation board of directors
includes M.S. Srinivasan, Additional Secretary, Ministry of
Petroleum and Natural Gas, who also happens to be a director of
the interconnection doesn't end there. On the board of directors of
ONGC is N.K. Nayyar, who is also the director of planning and
business development in the Indian Oil Corporation(IOC)
India in control of our petroleum retail sector due to this
government effectively shutting out the China-owned company Sinopec
(Hong Kong) Ltd., in favour of Bharat Petroleum, a takeover by ONGC
of Sri Lanka's oil exploration blocks would effectively mean that
India controls Sri Lanka's energy resources.
also means that Sri Lanka may be subject to a great deal of
litigation as it would be in violation of agreements signed with the
ADB, with T.SG.Nopec and the country would lose its credibility as a
player in the investment market and be relegated to the status of a
President Kumar- atunga herself on a state visit to Teheran in
November 2004 requested Chairman of the Expediency Council and
former President of Iran, Hashemi Rafsanjani
to consider assistance for offshore exploration for petroleum
resources in Sri Lanka.
you this was while the ONGC delegation led by Executive Vice
President of OVL, Joeman Thomas, was meeting officials of the
Ministry of Power and Energy in Colombo attempting to strike a deal
with the government. ONGC sources confirmed that officials
representing them had travelled to Colombo.
sector sources in Colombo also reveal that several international
leading oil drilling companies from the United States, United
Kingdom and China have already given a commitment to be present when
open bidding begins in Sri Lanka for exploration of oil.
visiting Australian delegations have also shown interest in the
energy sector and it is to Sri Lanka's benefit to obtain the best
possible price on the best possible terms for the nation under an
open bidding process. It is prudent for Sri Lanka to be
geopolitically astute and while maintaining cordial relations with
our giant neighbour to also maintain economic relations impacting on
the geopolitical balance, with the rest of the world. Too much of
India may prove too much of a good thing.
on ONGC proposal
Has the government signed a contract with Bharat Petroleum as
the third player?
Regarding the third player negotiations are going on by the
PERC, this one third belongs to the Treasury, my Ministry has
nothing to do with that.
Are we going to call for tenders with regard to oil
But the ONGC has already handed over a proposal to you through
the Indian High Commissioner?
That is to have a partnership with Petroleum Corporation. The
entire sea from the Gulf of Mannar extending to Hambantota
will be divided into about eight blocks. With regard to one or
two blocks we could have a joint venture with another known
But shouldn't tenders be called for even those one or two
Definitely. But we could also conduct our own explorations
in partnership with another company, as we don't have the
technology and the funds.
To secure that partnership shouldn't we call for tenders?
Once we call for tenders we have nothing to do with that
particular block that is up to that particular company.
What is the role of the ONGC then?
At the moment they have sent us a proposal to have a joint
venture with the CPC
So with regard to ONGC it will be on a negotiated basis?
That of course we have still not decided. It is only a
proposal by ONGC
If Bharat Petroleum and ONGC come in, India will take full
control of our energy resources?
ONGC getting involved in oil exploration is another matter.
Oil business is another matter. At the moment the CPC has
about 200 petrol sheds, LIOC has about 100 given by the last
regime plus 20-25 taken over from franchise dealers. These
dealers are CPC dealers and have 659 petrol sheds. So we have
nearly 1000 petrol sheds out of which LIOC has only 120.