ONGC JV’s

Presentation to Hon’ble Minister

PROPOSALS

• ONGC Values Ltd.

• ONGC Peripherals Ltd.

ONGC Values Ltd.

OVaL

OVaL

• Lessons from History

Burmah Oil and Shell came first

- Part of the ‘Raj’

- Covenanted appointees

- Entrepreneur Dealers - Family Business

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• The Americans came after Independence

Expats rather than home appointees

- Entrepreneur Dealers - Family Business

- Subsidiaries of the Seven Sisters

- Cosy Cartel re Refinery Agreements

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• IOC came next

Recruited professional, experienced Managers from Shell, Esso, Caltex.

Converted dealers from Shell, Esso, Caltex.100.00% backed by the GoI as the Only

PSU.

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IOC enjoyed meteoric growth till 1977 whereas after 1965, Shell, Esso, Caltex were winding down business, along with FRS (which greatly benefited IOC!)

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1977

- Sales Plan Entitlement Scheme

- UEG Scheme

- IOC no longer the lone R&M PSU

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Coming Downstream

25 years after 1977,

ONGC Faces

Entry Barriers

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Why OVaL?

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OvaL is essential to recruit, skilled,

experienced, self starter, executives

whether employed or superannuated,

at market oriented compensation

bench marked to MRPL practice.

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We do not have the time to recruit

graduate Trainees and build them up

over 15 - 25 years!

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OVaL is essential to purchase/lease

sites for Outlets and Depots at prices benchmarked to Government Valuation plus

market-related premium.

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We do not have the privilege of all

Urban Development Authorities

allotting sites preferentially to IOC, &

IOC enjoying the Lion’s share in the

marketing Plans!

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OVaL is essential for ONGC to actualize vertical integration on the value chain by: -

> Recruiting skilled and experienced self starters for Downstream business.

> Acquiring assets at market-linked prices rather than the inherently skewed ‘valuations’.

> Retaining ONGC’s executive focus on E&P

OVaL

What is OVaL?

> A Non-Government JV of ONGC and FI’s since they do not have any conflict of interest.

> ONGC holds maximum permissible equity for a Non-Government JV, and no FI holds more than 25.9%.

> FI’s can sell their equity only on ONGC’s approval of their buyer.

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What is OVaL?

> ONGC holds the Chair and the majority on the Board.

> ONGC confirms compliance of prevailing Dealer Selection Guidelines, and Marketing License terms by OVaL.

> OVaL proposed with Authorized Capital of Rs.200 Crore, within Navratna Guidelines.

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How will OVaL operate?

> OVaL will be a service provider to ONGC for manning, operating and maintaining the marketing network, for a negotiated fee.

> Assets will be owned by ONGC, except if and when ONGC authorizes Oval to own specific assets on which ONGC will have pre-emptive rights.

> Marketing will be under ONGC brand.

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OVaL will provide ONGC the choice of on and off Balance Sheet financing as required.

OVaL will remain a de facto PSU.

OVaL will ensure that ONGC’s own talent remain focused on the core business of E&P.

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Summarizing OVaL is essential to ONGC, to have a fighting chance in competition with: -

> BPC and HPC (also IBP) with historical advantages of coming first.

> IOC with historical advantages of unbridled GoI patronage and talent sourcing from MNC’s.

> Reliance, Essar & Shell with usual Provate Sector liberties including talent sourcing from IOC and other PSU’s.

OVaL

We request Ministerial approval for OVaL,

to obtain a measure of the nurturing that

the Ministry provided to IOC as PSU,

in the crucial formative period

(1956-76, especially 1965 - 1976)

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The concept of OVaL is validated by the

fact that IOC wants to follow the

same approach to beat potential

competition from ONGC or otherwise!

ONGC JV’s

ONGC Peripherals Ltd.

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• ONGC uses barges and ships for:* Survey: Seismic, geo-Technical* Supply: Provisions, Stores, Equipment & Spares.* Support: Surface and Sub-sea inspection and

repairs* Services: Towing & Anchoring, Well-Stimulation.* Security: Guard & chase* Production: EPS, FSO and FPSO* Construction: Pipe-Laying, Installations* Transportation: Tankers

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• ONGC owns 38 charters, more than 90 vessels (excluding rigs) of different types.

• ONGC owned vessels are operated on O&M contracts.

• Provisioning in done from supply bases (Mumbai (2) and Visakh)

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• ONGC owns (3) and charters more than 15 helicopters for air logistics. Replacement for the executive aircraft is being planned, along with Emergency Airlift capability for the Crisis Management Team for blow-out control.

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Annual OPEX of these operations exceeds

Rs. 1,000 Crore.

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ONGC operations are expanding fast especially offshore. In Progress:

> Largest ever offshore survey> Globally largest ever deep water exploration.> Development of 3+ new fields proposed:

- Supply bases at Okha (?), Mangalore, Tuticorin, Kakinada, Paradeep and Mumbai alternate (?)

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Ocean transportation needs are fast increasing for (I) dispatching crude directly from offshore SBMs, (II) lifting crude for MRPL and (III) lifting crude from overseas assets.

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Problem 1Right of First Refusal (RoFR) is available

owners of vessels and aircraft of Indian

registry, assuring them of contracts by

matching L1 bid. ICBs, therefore, are

pointless. Indian owners exploit this right ny

sourcing obsolete, second hand (even junked)

equipment. They hold ONGC at ransom by

failure to provide reliable and sufficient

services.

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Problem 2

Because there is no effective competition,

Indian Parties overcharge ONGC while

providing technologically inferior services.

Charter rates go up as the vessels grow older.

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Problem 3

Private O&M contractors for vessels had been

flouting all norms of safety, maintenance and

efficiency, in collusion on ONGC personnel.

Vessels have remained out of service for years

together, even sunk. Vessels were being

manned by unlicensed Masters. Serious frauds

have been perpetrated.

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Problem 4

SCI insists on cost plus rates, substantially

higher than the market. SCI also faces

procedural delays and labour problems typical

to all PSU’s.

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Problem 5

Charter rates comprise of (I) capital charge,

(II) revenue expenditure, primarily crew and

bunkers and (III) margins. Charter rates are

volatile and owners make a killing because

demand for specialized vessels and (double -

hulled) tankers outstrips supply.

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Typical charter rates in USD per DAY

- OSV: 5,000

- MSV: 30,000

- Survey Stimulation vessel: 35,000

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ONGC’s performance is critically

dependent on assured and sustained

availability of technologically up-to-date,

cost-effective, operationally efficient. Specialized vessels, tankers and aircraft

managed and manned by professionals.

Why OPaL?

OPaL

• Induct professionally skilled and experienced self starters.

• Acquire modern fleet under Indian Flag.

• Assure safety, Reliability, Adequacy.

• Improve fund management and profitability.

• Retain ONGC executive focus on E&P.

What is OPaL?

OPaL

• A non-Government JV of ONGC with shipping/ship repair/port companies from India/Abroad to induct competencies in the Board, and FI’s.

• ONGC and PSU partners hold maximum permissible equity for a non-government JV with ONGC holding not less than 26% and no single partner more than 25.9%

• Partners can sell their equity only on ONGC’s approval of their buyer.

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• ONGC holds the Chair and affirmative vote in the SHA.

• OPaL proposed with Authorized Capital of Rs. 200 crore within Navratna Guidelines.

• ONGC places existing/newly acquired assets on back to back charter with the JV.

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How will OPaL operate?

• OPaL will be a service provider to ONGC for manning, operating and maintaining the air and sea fleets for a negotiated fee.

• Assets will be owned by ONGC except if and when ONGC authorizes OPaL to own specific assets on which ONGC will have pre-emptive rights.

• OPaL may provide services to other E&P companies on specific approval from ONGC.

OPaL

• OPaL will provide ONGC the choice of on-and- off balance sheet financing as required.

• OPaL will remain a de facto PSU.

• OPaL will not have exclusive right on ONGC’s business.

• OPaL may BOO supply bases.

• OPaL will ensure that ONGC’s own talent remains focused on core business of E&P.

OPaL

Summarizing OPaL is essential to ONGC to improve safety, efficiencies and cost effectiveness.

• Globally all E&P majors out source such inputs, some on the pattern proposed here.

• OPaL will correct serious inefficiencies and mal-practices.

• Ocean transportation is an important step in vertical integration.

Request Approval for OVaL and OPaL