ONGC in talks with global energy giants for tie-up for KG gas block

ONGC is looking for a partner after Norway's Statoil and Petrobras of Brazil decided to quit the block KG-DWN-98/2 due to government delays in approving their participation in the deep-sea acreage

State-owned exploration major Oil and Natural Gas Corporation (ONGC) is in talks with global energy majors BP Plc, Exxon Mobil, BG Group, Eni and BHP Billiton for a strategic tie-up for its Krishna Godavari (KG) basin gas block, reports PTI.

"We are looking at exploration firms with expertise to produce from deep-sea. We have opened our KG basin block data to global companies and have sought firm offer by 31st May," ONGC director (exploration) Dinesh Pande told reporters in New Delhi.

ONGC is looking for a partner after Norway's Statoil and Petrobras of Brazil decided to quit the block KG-DWN-98/2 due to government delays in approving their participation in the deep-sea acreage.

The block now has 10 gas discoveries and ONGC plans to tie up these with six gas finds in the neighbouring 1G block to begin production in next three to four years.

Pande said KG-DWN-98/2 was awarded under the New Exploration Licensing Policy (NELP) and the policy allows it to farm out a participating interest (equity stake) to foreign firms.

But since Block 1G was given to it on a nomination basis, it cannot sell stake to any firm. ONGC can at best involve a foreign firm as a service contractor.

"The companies have to decide if they are comfortable with taking stake in one block and being a service contractor in the other," he said.

BP, Exxon, BG and Eni have already seen the data of the prospects ONGC has discovered in the KG-DWN-98/2, which sits next to Reliance Industries' (RIL) prolific KG-DWN-98/3 or KG-D6 block, and 1G block in the Bay of Bengal. BHP has also shown interest but it has not seen the data as yet.

ONGC has 65% interest in KG-DWN-98/2 that has been assessed to hold 14 trillion cubic feet of gas reserves. It has 100% stake in 1G.

The company plans to tie up discoveries in the two blocks to produce 25-30 million metric standard cubic meters a day (mmscmd) by 2015.

Petroleo Brasileiro SA or Petrobras, Brazil's state-controlled oil firm has offered ONGC its 15% interest in KG-DWN-98/2 without any cost. Similarly, Statoil has decided against participating in future drilling in the acreage off the Andhra coast.

This follows apparent unwillingness of the oil ministry and its technical wing Director General of Hydrocarbons DGH to accord approvals for equity participation by foreign companies and the inordinate delays in clearing the drilling programmes.

ONGC, a few years back, had bought 90% stake in the block from Cairn India. In 2007, it farmed out 15% interest in the block to Petrobras and 10% to Norsk Hydro (now Statoil Hydro). Cairn still holds 10% stake in the block.

The block now has 10 discoveries and appraisal drilling is now required to be carried out to assess the potential before finalising development of gas fields.

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Select export sectors may get more sops: Minister

Labour-oriented export sectors like handicraft, jute, engineering goods and electronics registered negative growth in March, despite the country's overall exports showing 54.1% expansion

Exporters of engineering products and handicrafts may get more fiscal sops to help them tide over the demand crunch, according to commerce and industry minister Anand Sharma, reports PTI.

"We will have to tweak those sectors which have not recovered," Mr Sharma said.

He said the Directorate General of Foreign Trade (DGFT) in his ministry would complete a performance review of different sectors in July.

Labour-oriented export sectors like handicraft, jute, engineering goods and electronics registered negative growth in March, despite the country's overall exports showing 54.1% expansion.

In a similar exercise in December, the government had provided some market- and product-linked incentives. For encouraging export diversification outside the western economies, the commerce ministry had extended incentives on shipments to 41 new markets.

The government intervened with a stimulus packages when exports plunged after October, 2008, under the impact of global financial woes.

"It was a tough call because last May, our exports were in deep red, -39.4%," Mr Sharma said, adding that the export sector has seen a broad-based consolidation.

According to a senior commerce ministry official, incentives could be shuffled among different sectors. Those doing well like gems and jewellery may have to vacate some sops for the segments still in trouble.

In 2009-10, India's exports dipped by 4.7% to $176.5 billion from $185.29 in the previous fiscal.

Mr Sharma, who is also in charge of the industry department, said consolidation has also taken place in the manufacturing sector.

The manufacturing sector, which saw growth dive to 3.3% in March, 2009, had peaked at 18.5% growth in December, 2009.

His ministry is working on a plan to give a fresh impetus to the sector. A concept paper on setting up National Manufacturing Investment Zones (NMIZs) has been placed in the public domain.

Some of the suggestions, like giving flexibility to units in NMIZs to downsize the workforce, are considered radical.

Mr Sharma said, however, there would be provisions for social safety for the workers.

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Law and market efficiency

Laws introduced to protect privilege distort the incentives and disincentives to such an extent that the normal market mechanisms lose their efficiency

The Declaration of Independence of the United States contains a false assumption. Although it might be agreed that people are endowed with certain unalienable rights, it is absurd to believe that they were created equal. Some people are more intelligent or better looking or more verbal or better coordinated than others. Some people were born to wealth. Some were born to be kings or princes, while others are born into poverty. The random nature of birth for any country has little to do with economic growth. What is important are the possibilities during life. Potential individual merit is often limited by lack of personal connections.
 
In game theory there are two types of systems, rule-based systems and relationship-based systems. In rule-based systems agreements, laws and regulations are dependent upon enforced rules. In relationship-based systems outcomes are determined by networks. One system is not morally better than the other. Both systems co-exist in all countries. What is true is that rule-based systems are more economically efficient.
 
The distinctions between rule-based and relationship-based systems are not black and white. Instead there is a spectrum. Even in law obsessed countries like the United States and France, relationships are exceptionally important. In France, seven of the past 12 prime ministers, and two of the past three presidents, including both current incumbents, went to one of the “grandes écoles” as did 50% of the chief executive officers (CEOs) of the CAC 40 index companies.
 
Emerging markets are more on the relationship end of the spectrum. The economic impact can be enormous. The Philippines, in theory, has a democratic system. It has a lively press and regular elections. In contrast, China has an authoritarian one-party state where information and speech is regulated and suppressed.
 
It would seem that these countries have little in common. China has been growing rapidly over the past twenty years in a seemingly unstoppable drive on the road to development. In contrast the Philippines seem stuck. Their per capita income is less than half of the income for Thailand, less than a quarter of Malaysia and only a tenth of the average income of Taiwan. This was not always the case. In the 1950s Philippines and Japan were considered prime candidates for rapid economic growth.
 
What has gone wrong? One possibility was suggested by the great economist Mancur Olson. Olson argued that certain elite power groups tended to subvert laws and institutions to their benefit. They take more of the economic pie rather than enlarging it. The real damage is not the extra money that the elite garner, in any economy certain commodities including talent are worth more than other commodities. What slows the economy and eventually decreases the pie are the laws. The laws introduced to protect privilege distort the incentives and disincentives to such an extent that the normal market mechanisms lose their efficiency. The result is that over time the economy slows.
 
The Philippines, like many Latin American economies, has a very few spectacularly rich citizens and masses of the abjectly poor. With the odds stacked in their favour, the rich have huge economic incentives to maintain the system— often at any cost. Worse they become rent seekers, so the system keeps getting worse. The only potential limit is the law itself. Since the law is controlled by the elite, its function is reversed and it is used to extend their power rather than restrict it.
 
In emerging market after emerging market the pattern repeats although by different names. In Russia the present ruling elite are known as “siloviki”, "strong guys" from the security services who surround prime minister Putin. In Africa they are known as Big Men, who utilize regulations to monopolize imports like petrol for Nigeria. India must labour under the caste system and now a new generation of political heirs from the Gandhi progeny to alumni of the Doon School, Stanford, Harvard Business, and investment banking continue a system that distorts investment.
 
Still Russia, Nigeria and India are all as least nominally democratic and all three countries have multiple parties and some speech is protected in widely varying degrees. The laws that allow these rights provide some limits to the power of the elites. Not so in China. In this nominally socialist country the higher ranks are dominated by so called taizidang or "princelings".
 
These children of senior Communist party officials are blessed with superior connections denied mere mortals and foreign investors. In an unstable and often arbitrary legal environment these connections are often the only way to get things done, so the princelings are on the A list of every western investment bank and have amassed wealth to match their status.
 
When capital is limited to connections, it fails to find the most economical efficient path. Over time these decisions will slow the economy as has occurred in the Philippines and will eventually occur in China.

(The writer, William Gamble, is president of Emerging Market Strategies and can be contacted at [email protected] or [email protected]).

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COMMENTS

Java

7 years ago

The framers of the American constitution were not silly. The term "equal" in the constitution, means equal before the law.

In India, however, the term has been taken literally and this assumption, of everyone being equally talented and gifted, has been the basis of State action. The results are for all to see, in the pathetic, even disastrous quality of governance in India. The government servants are the true rent seekers, the Kulaks of modern India.

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