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INVESTIGATION: ONGC VIDESH'S
SAKHALIN PROJECT
ONGC: MILKING THE CASH COW
ONGC was set up
to fuel India's growth and growing need for petroleum. It currently contributes
more than 80 per cent of the domestic petroleum output and operates most
exploration and production activities, including offshore operations like
Bombay High.
But the public-sector undertaking's performance
has been far from satisfactory in bridging the growing gap between domestic
need and production. Almost 70 per cent of India's total oil consumption
is met through imports. While domestic crude oil production remained unchanged
at 32.48 MT in 2000-01 compared to the 31.95 MT produced in the previous
year, the oil import bill has jumped from Rs 54,000 crore in 1999-2000
to Rs 80,000 crore in 2000-01. This has proved to be a drain on India's
foreign exchange reserves.
Indeed, a recent report by management consultants
McKinsey & Co has stated that ONGC is likely to become a loss-making
entity in the next 3-5 years unless it radically changed its organisational
structure and its focus.
McKinsey & Co is not, however, the only
critic of ONGC's functioning. The standing committee on petroleum and
natural gas recently told Parliament that ONGC had drilled only six wells
so far in deep water regime despite the Planning Commission identifying
it as an area of special attention. It called on ONGC to expand its deep
water portfolio to the maximum. Stating that there had been no major exploration
by ONGC after Bombay High, it called for working out a comprehensive action
plan for survey of deep water prospects.
SAKHALIN: TROUBLED POTENTIAL
The Sakhalin island
is situated in the Russian far-east, just north of the Japanese island
of Hokkaido. Onshore Sakhalin oil and gas reserves have been produced
for decades, but are now largely depleted. While oil was first discovered
as early as in 1928, the Soviet Union did not have the money or the technology
to explore these reserves. A Japanese-Russian joint venture discovered
the first offshore fields in the 1970s. But declining oil prices and the
Cold War drove the project to a halt in the early 1980s.
 While
there is no doubting the potential of oil and gas in Sakhalin, drilling
conditions are difficult and production of gas demands expensive technology.
The Sakhalin-I consortium was formed in June 1995 by the coming together
of Rosneft (23 per cent) and Sakhalinmorneftegaz (17 per cent) of Russia,
Japanese consortium Sodeco (30 per cent) and Exxon (30 per cent) of the
US. The consortium was granted a licence to explore the Arkutun-Dagi,
Chaivo and Odoptu fields on the Sakhalin shelf and its agreement was signed
in 1996. But delays followed, primarily due to funding problems because
Sakhalin authorities wanted the project to be funded by overseas investors.
Also, the international developers want the terms to be like those at
Sakhalin-II (managed by the Sakhalin Energy Investment Company) with clear
legal clauses. These promoters have had a tough time with changing regimes
and policies. Oil sector experts based in Europe believe that although
the Russian administration ostensibly supports foreign investment, its
focus is really to get oil majors to cooperate in massive joint ventures.
This makes oil exploration and production very
expensive but the Russian focus is on generating employment. There have
also been environmental concerns which the Russian authorities and the
Sakhalin administration have been trying to resolve. These and other policy
issues have caused numerous delays causing further escalation in costs
and slide in returns for the investors.
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