Investments of over $5 billion by three of India?s public sector companies in Mozambique?s giant gas field Rovuma Area 1 are in trouble with the local government failing to ratify a remunerative fiscal regime so far. Though the project has been in the making for several years, the fiscal regime was never finalised, and has now got held up due to elections in Mozambique on October 15.
While Bharat PetroResources invested $75 million in 2008, ONGC Videsh and Oil India invested a whopping $5.1 billion just last year when they bought out Videocon?s 10% stake in the field along with another 10% from the main operator Anadarko, a US firm. If the new Mozambique government finalises an acceptable concession agreement, and this is the best-case scenario, production could get delayed significantly beyond the original date of 2018.
There are two arrangements being discussed, one where the costs of both the gas field ? one of the biggest in the world ? and the LNG terminal are recovered first (this is similar to the model in India right now). In the second case, only the costs of the field are recoverable while the terminal has to be funded through transportation fees.
?We are watching the situation carefully and are still hopeful that the project would start output by 2017-18,?OVL managing director SP Garg told FE.
It is not only India that is carefully watching the situation in Mozambique, but countries like Italy and US, which too have invested heavily in the hydrocarbon-rich country.
The petroleum ministry in India, sources said, has been informed about the likely delay in the project. A delegation headed by the joint secretary in the petroleum ministry, PK Singh, might visit Mozambique shortly, officials in the ministry told FE.
World leaders were in talks with the outgoing Armando Guebuza-headed government in Mozambique for the past few years to put in place suitable laws that allow foreign companies to operate in the country. Without the fiscal regime in place, it is not possible for companies to invest billions of dollars for the development of the gas field along with setting up of LNG terminal. These projects require would require large debt financing and LNG offtake arrangements.
OVL, the overseas subsidiary of ONGC, teamed up with another state-run player OIL to buy Videocon?s 10% stake in Mozambique?s Rovuma Area 1 for $2.475 billion.
Subsequently, OVL on its own bought another 10% stake in the same field from Anadarko Petroleum of the US for $2.64 billion. The 10% stake of Videocon is currently split in a 60:40 ratio and the total payout for OVL for the back-to-back acquisitions is $4.125 billion.
Texas-based energy-exploration company Anadarko will continue to be the operator of the block, with its stake reduced to 26.5% from 36.5% after the deal. Area 1 covers nearly 2.6 million acres in the deep-water Rovuma Basin, off the Mozambique coast, and represents the largest natural gas discovery in offshore East Africa with estimated recoverable resources of 45-70 trillion cubic feet.
The project, with a capacity to produce 20 million tonnes of LNG annually, would be the world’s largest LNG export site after
the ExxonMobil-run
Ras Laffan in Qatar.
The Area 1 partners as well as Italian oil company Eni, which operates an adjacent field, will jointly develop what will be the world’s biggest LNG project with deliveries beginning in 2018.