Oil min backs Ratna oil block re-auction

New Delhi | Updated: Aug 20 2013, 10:32am hrs
Pranab Dhal Samanta

In an attempt to break a deadlock that has held back the exploitation of one of Mumbai Highs proven oil finds for 17 years, the oil ministry has taken the call to scrap all earlier arrangements and go for fresh auction of the controversial Ratna oil block in the area, reports Pranab Dhal Samanta in New Delhi. While the law ministry is of the view that the government cannot go back on its earlier decision, the oil ministrys problem is the deals price is no longer viable.

The wheels are expected to move now after the petroleum ministry's stand to go for fresh auction. The matter will also go to the Cabinet, where a call would have to be taken on the legal implications of reversing an earlier decision.

In 1996, the Ratna and R-series oil fields were given to Essar at about $800 million. As of now, sources said, with proven resources of about 900 million barrels, the cost based on current oil prices would be close to $9 billion. Government sources said it would be difficult to award the contract at old prices and the company is against any price revision.

This, in effect, would mean scrapping the 1996 Cabinet decision to award the contract to Essar based on an open bid for 12 blocks in Mumbai High. Of these, 11 contracts were signed but this one could not be executed after certain doubts developed on the financial viability of the contracting company as well as other unresolved technical issues.

With oil accounting for the majority share of the country's import bill, sources said, a way had to be found out to start exploration in this block than be locked in an unending controversy. All these 12 blocks were found by the ONGC and then put up for bid with ONGC continuing to keep 40 per cent share in each block.

For about four years after the Cabinet decision, the deal with Essar just could not take off due to a series of allegations and investigations, including that the company allegedly leveraged the oil block to obtain loans before the production sharing contract was signed.

When finally many of these issues were settled, considerable time had passed and oil prices had soared. This put the government in a fix as agreeing to settle at old prices would have attracted political controversy. The Cabinet Secretary was asked to find a solution. Through the last decade, sources said, various options were discussed but an agreement could not be reached because of pricing issues. This deadlock meant that one of the few proven oil resources of the country unexploited.