ONGC

To

Shri Narendra D Modi
Prime Minister

Dear Shri Modi,

I understand that the government has recently directed ONGC to hive off 60% of its Mumbai High, Bassein & Satellite oil/gas fields to foreign oil companies (https://www.business-standard.com/article/companies/x-121110100853_1.html), ostensibly to enhance hydrocarbons production from those fields.

The proposal, in my view, is highly imprudent for the following reasons.

  1. Mumbai High, Bassein & other western offshore satellite oil-fields constitute a significant proportion of ONGC’s discovered hydrocarbons assets. Hydrocarbon production from those fields constitutes around 63% of ONGC’s total production and more than 40% of the All India production levels. If the directive issued by the government were to be enforced, it would amount to stripping the Corporation of its most valuable assets and crippling its contribution to nation building.
  2. The architect of ONGC was the visionary leader, Shri K D Malaviya (with whom I had an opportunity to work during mid-seventies), who in consultation with the then Prime Minister, Shri Jawaharlal Nehru, created the Commission (as it was known at that time) in 1955 as a national symbol of self reliance in the hydrocarbon sector, at a time when foreign oil companies were largely running the oil industry in the country and conducting operations not totally in line with India’s national interest. It was the relentless effort of ONGC that has facilitated the then Commission to take up a comprehensive exploration of the hydrocarbon deposits in the country, build valuable human resource assets, necessary to undertake the future tasks in oil/gas exploration/ development and create an environment conducive to R&D and technology development relevant to the oil industry. To strip ONGC of the bulk of its highly valuable hydrocarbon assets and give them away to foreign oil companies would amount to turning the clock back and dismantling the vision of Shri K D Malaviya. Such a step will undoubtedly be unfortunate.
  3. ONGC is a Maharatna company, which has been classified as such with the specific intention that the government should give it sufficient functional autonomy. For the government to “direct” ONGC to hive off the bulk of its hydrocarbon resources amounts to making a mockery of the premise that the government should function at an arm’s length distance from the PSUs. It has certainly set a bad precedent in so far as the concept of PSUs is concerned.
  4. Over the last few years, the government has repeatedly encroached on ONGC’s autonomy and interfered with its finances and operations. For example, in 2016, the government forced ONGC to acquire an 80% stake in the KG Block assets of Gujarat State Petroleum Corporation, a State PSU that had already entangled itself with a heavy debt burden. (https://energy.economictimes.indiatimes.com/news/oil-and-gas/ongc-completes-rs-7700-crore-acquisition-of-gspc/59925606). This amounted to crippling ONGC financially and forcing the Corporation to divert its scarce resources from priority investments in its own fields to areas where the returns may not prove to be productive enough.
  5. Over the years, the Centre has forced ONGC to declare dividends beyond its means, thereby eroding its ability to invest its disposable income on exploration and development of hydrocarbons. For example, between 2014 and 2021, ONGC was forced to declare 27% of its net profit accruals as dividends, which resulted in its capital investments during the same time-frame plummeting to 24% of its net profits. In other words, the government accorded a higher priority to viewing ONGC merely as a source of revenue, compared to considering it as an effective instrument to strengthen India’s self-reliance in the hydrocarbon sector. Government’s equity share in ONGC being 60.4%, the bulk of the dividends went to fill the coffers of the government. (https://www.ongcindia.com/)
  6. In the past, the government had unilaterally announced that 149 discovered oil fields of ONGC would be auctioned to private companies, a move that would hurt ONGC’s interests (https://energy.economictimes.indiatimes.com/news/oil-and-gas/govt-mulls-selling-149-fields-of-ongc-to-private-companies/66576249). At that time itself, some of us had cautioned the government to revoke that decision as it would hurt India’s quest for self-reliance in the oil sector. Moreover, even if some private companies were to take over ONGC’s fields, it is the ONGC’s technical personnel on whom the private companies would necessarily have to depend.
  7. If it is merely a question of securing access to a foreign technology for enhancing oil/ gas production from these fields, there are more benign ways to do it. ONGC can always enter into technology collaboration arrangements with the necessary safeguards with the foreign companies, instead of parting with its highly valuable assets on which it has invested its sweat and toil.
  8. The latest decision of the government to ask ONGC to hive off the majority stake in the Mumbai High/ Bassein/Satellite Fields seems to be a part of an ill-advised (well orchestrated?) strategy to cripple ONGC as the mascot of India’s self-reliance in the field of hydrocarbons. Is it a part of a larger plan to divest public equity in ONGC, as has been the case with many strategic PSUs of late? The government’s real intentions in this case raise a serious public concern.

 

Perhaps, this is a matter that calls for a debate in the Parliament, as the long-term implications of this are far too serious to be ignored. In addition, I feel that a wider public debate is called for in view of the fact that these assets belong to the nation.

Keeping these concerns in view, I would earnestly appeal to the government to revoke the decision to hive off ONGC’s assets to domestic and foreign companies and uphold the nation’s interest.

ONGC represents the inherent strength of India’s hydrocarbon sector and the benchmarks it sets for the private oil companies operating in that sector will alone ensure that the latter’s conduct in India remains consistent with the national interest. It is imperative that, instead of weakening ONGC, the government should adopt a conscious strategy to strengthen its ability.

 

Regards,

Yours sincerely,

E A S Sarma

Former Secretary to Govt of India

 


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