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The oil & gas exploration business is akin to dining out.
Regardless of what you tuck in, you pay for the a la carte order.
This philosophy underlines the government's exploration policy-if
an explorer does not deliver his committed Minimum Work Programme
(MWP) to find oil and gas, the penalty is the cost of the unfinished
programme. However, the government's technical arm that oversees
implementation of the exploration contracts, the Directorate General
of Hydrocarbons (DGH), appears to have adopted a rather generous
interpretation of the penalty clause over the last few months,
say government officials. The potential loss to the government:
$150 million (Rs 660 crore). The gainers: Reliance Industries
(RIL) and ONGC, in equal proportion. And, this is just the beginning,
for the government has signed as many as 190 contracts, most of
them inked after 2001.
On its part, the DGH has stood by its revised claim on the two
companies. In the case of RIL, the original claim was for $96
million, when the petroleum major relinquished four blocks without
completing its MWP. This was whittled down to $19.5 million, following
negotiations between RIL and the DGH. The sharp reduction in the
bill was mainly on three counts: First, the cost of drilling a
well did not include several costs associated with the operation;
second, the drilling depth was less (the deeper the well, the
higher the cost); and third, the market rate of the drilling operation
was well below the prevailing costs. Around the same time, ONGC
relinquished six blocks, for which the DGH had raised a claim
of $107 million. The final bill, however, came to a mere $24.5
million, but not before ONGC officials pointed to the practice
adopted in the case of RIL.
Interestingly, ONGC, far from rejoicing because of the reduced
penalty, shot off a letter to the government early this month,
stating discriminatory practices being adopted by the DHG. Its
claim: Had all the allowances granted to RIL been allowed, the
penalty would have been lower. The lament, however, was part of
a larger grouse-the DGH had disallowed a hydrocarbon discovery
made by ONGC. In the letter, Chairman and Managing Director R.S.
Sharma said that ONGC stock-and thereby its shareholders-took
a severe drubbing because of this. The company's market value
eroded by Rs 23,527 crore in a span of 11 days. Sharma refused
to comment on the issue to BT. The Director General Hydrocarbons
V.K. Sibal remains convinced of his actions. "The DGH goes
by the production sharing contract, which is sacrosanct for all
operators," says Sibal.
The controversy between the DGH and ONGC brings to the fore
a larger regulatory issue-the role of the DGH and the government
in appraising the exploration programme. Since the government
allows cost recovery in cases where the explorer finds commercially
extractable hydrocarbons, its technical arm needs to vet the costs,
a key role delegated by the government to the DGH. In the instant
case, industry experts argue that the DGH has jumped the gun by
commenting on the discovery even before the field development
and production plan (which follows several test procedures) is
put in place; it is only after this is done that the explorer
seeks recovery of costs from the field, before finally sharing
the hydrocarbon production with the government. The DGH's justification:
Such unsubstantiated discoveries lead to speculation.
Clearly, the DGH's role is up for scrutiny-the government (petroleum
ministry) is already reviewing the powers that it delegated to
the DGH to approve the penalty charges in cases where the MWP
remained incomplete. On its part, the government has hardly improved
the production sharing contract document over the last decade
to ensure clarity in implementing contract issues.
Perhaps, the controversial developments over the last few months
could have been avoided had the government agreed to set up a
regulator for the exploration business last year. Instead, it
chose to have one for only the refining and marketing sector.
-Balaji Chandramouli
Tag
and Track
India's first RFID tags maker sniffs out
a lucrative opportunity.
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| Gemini’s Venkat: Rolling
out tags |
Business opportunity knocks
pretty frequently these days on the doors of eager Indian entrepreneurs.
One such prospect identified by an Indian company is to make radio
frequency identification (RFID) tags, which are popular overseas
and are used to track everything from shipping containers to railroad
cars to animals. These tags are, however, prohibitively expensive
in India, which limits its off-take. One reason for that is that
there has been no local manufacturer of RFID tags in India until
recently when a company called Gemini TRAZE RFID set up a manufacturing
centre to make 100 million RFID tags off Chennai, with an investment
of Rs 30 crore.
Even as the first indigenous tags have started rolling out,
ceo Pradhyumna T. Venkat is quick to point that the company already
has 150 installations to its credit. With the price of the tag
coming down from Rs 50 to Rs 10 or even less, this would be poised
to replace bar coding in retail outlets, in libraries (to ensure
that books don't get stolen), used for document mapping in insurance
and banks, government offices (where it is difficult to trace
the right document/file), tracking lost assets in companies and
in many other applications such as RFID embedded cards and passports
with biometric information.
Of course, an RFID tag needs a reader and the investment in
this infrastructure ranges from Rs 2 lakh to Rs 40 lakh (depending
on the requirement). Venkat feels the tags are worth every rupee.
"There will be a visible return on investment in a year,"
avers Venkat. Will somebody track that statement?
-Nitya Varadarajan
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