Rigged

Who is undermining India‘s national oil company?

By KRISHN KAUSHIK | 1 July 2014

Courtesy ONGC

The ONGC exploration rig Sagar Samriddhi. The corporation has been drilling for oil since

the 1960s.

Print|E-Mail|

Multiple Page

THERE ARE MANY REASONS why world leaders are willing to go to war for oil: along

with natural gas, crude oil is crucial to electrify homes, provide piped heat to cities, light

cooking stoves, fertilise crops, run cars, transport goods, fly across continents, deploy navies,

power industries, build roads and manufacture polyester clothing, cold creams, ink, nail

polish, perfumes, shoe polish, motor lubricants, and house paint—and in case of a blackout,

when you cannot see any of this, to light a kerosene lamp. What water and air are to the

human body, crude oil and natural gas have become to modern societies.

Most sovereign states nurture the ambition to be energy self-sufficient, even if they know it‘s

not possible. Sixty years ago, in pursuit of the independence and security that access to

hydrocarbon fuels can bring, the Indian government created a specialised arm to hunt for oil

and gas at home and around the world. Today, India is among the hungriest consumers of oil

and gas on the planet, and the agency that was set up to satisfy this demand is among the

three most highly valued corporations in the country. But it is failing in its core competence

and existential mission: finding and producing fuel for the nation.

|ONE|

THE YEAR 1999 WAS A SIGNIFICANT ONE for India‘s oil and gas industry. In

January, the government threw the country‘s hydrocarbon reserves open to private

exploration for the first time. Under the New Exploration Licensing Policy, national and

international state and private companies were invited to compete for the rights to drill at

sites around the country. In NELP‘s inaugural auction, 48 blocks, each potentially worth

billions of dollars, were up for grabs. The process attracted 21 bidders, including India‘s

largest company by revenue, the state-owned exploration and production giant Oil and

Natural Gas Corporation Limited.

For ONGC, which produced nine-tenths of the nation‘s hydrocarbon fuels, this was new

terrain. In the past, the corporation and another public sector company, Oil India Limited,

could freely select oil and gas blocks to lease from the government; private and international

players were only allowed to operate in the exploration and production, or ―upstream,‖ sector

by partnering with one of them. This had worked well through the late 1980s, but in the

following decade India‘s energy demands dramatically overshot domestic production. NELP

was meant to narrow the gap by fostering more aggressive exploration.

In mid August, about a week before the deadline to submit bids, a team of ONGC experts

from Dehradun arrived in Delhi. In the past, the group helped the government evaluate

proposals from private corporations keen to set up joint ventures with the national oil

companies. To ensure fair play in the era of open competition, the experts had been relieved

from government service and sent back to ONGC. The corporation‘s director of exploration

convinced the then chairman and managing director, BC Bora, that these men would be best

suited to assess the sites on offer and prepare ONGC‘s tenders.

At ONGC‘s offices near Connaught Place, the experts gave a block-by-block presentation to

Bora and his board. Only a handful of other people were in the room. When the team

finished, Bora asked them: if they could have just one site of all those on offer, which would

it be? ―Which is your number one?‖ he said, according to a board member at the time, who

was present at the meeting. They named a particular deep-water block in the Krishna

Godavari Basin, thirty kilometres off the coast of Andhra Pradesh—KG DWN 98/3, now

commonly known as KG D6.

Bora, a mannerly engineer with greying temples who previously served as the head of OIL,

told his team to double the minimum work programme for the block—the least amount of

surveying and drilling that ONGC would guarantee to carry out. This is the main criterion on

which bids are evaluated. According to the board member I met, the experts replied that

doubling the programme was unnecessary. ―We have been evaluating bids for the

government,‖ they said. ―Nobody makes such aggressive bids.‖ They had already drafted a

very ambitious proposal, they assured Bora. The director of finance was also concerned that

doubling the work programme would cost too much.

―There was a lot of halla,‖ the former board member recalled. Then Bora said, ―OK, make it

50 percent more—one and a half times the work programme.‖ With these instructions, the

experts went back to Dehradun, where the final bids were typed out.

When the blocks were awarded by the government‘s Directorate General of Hydrocarbons

the following January, Bora was taken aback, the board member said. ONGC had lost KG

D6, outbid by not only one, but two firms—Reliance Industries, which won the block, and

Cairn Energy, a European upstream company.

ONGC‘s director of exploration thought that something ―fishy‖ was going on, the board

member said. ―I feel it got leaked out—our numbers got leaked out and somebody was

snooping around,‖ he recalled the director telling him. The director suspected that the bid was

opened beforehand and given to Reliance. ―In the DGH‘s office itself the bid was opened and

given to them,‖ he speculated to the board member. ―They took back their bid, and came

back with a new envelope.‖

―Of course this was unconfirmed,‖ the board member told me. He wondered if there was

―one dark horse‖ in ONGC who spied for the competition. Were the private companies that

cunning? He said almost admiringly, ―These people are capable.‖

INTIMATIONS OF CORRUPTION ASIDE, the first NELP auction seemed to more or

less do its job, injecting the upstream sector with some much-needed competition and the

vigour of private enterprise. Reliance discovered gas in KG D6 in 2002, and started

production there in 2008. This was India‘s first operational deep-water gas project. At the

height of the block‘s output, the firm was drawing the gas equivalent of 460,000 barrels of oil

from it every day.

ONGC was sclerotic by comparison. In 2005, the public-sector company secured a 90 percent

stake in a neighbouring site, KG DWN 98/2, also known as KG D5. The chances of

successfully extracting oil or gas increase exponentially near a proven find, and ONGC

announced its first discovery in D5 in 2006. But eight years later, the public sector company

is still not producing gas from the block, and has said that it won‘t be able to until at least

2016. Meanwhile, Reliance is literally pumping gas into the national economy.

But things are not quite that simple. In addition to private suspicions about chicanery

undermining certain NELP bids, there have been a number of public accusations hurled at

Reliance. The Aam Aadmi Party leader Arvind Kejriwal has speculated that the company is

hoarding gas and, this May, ONGC took Reliance to court for allegedly siphoning off

thousands of crores worth of fuel from the reservoirs running through D5 and another block.

In addition, Reliance has never produced from D6 the amount of gas it promised to the

government.

The stories of D5 and D6 reflect many larger problems that have plagued ONGC and the

Indian upstream sector, particularly in the last fifteen years. The NELP regime was supposed

to end business as usual for the state-owned behemoth. Things have changed, and they

haven‘t—both to ONGC‘s detriment. Its turf has frequently been raided by more savvy

capitalist competitors—especially Reliance—while it has retained the culture typical of a

socialist sloth. In the meantime, people inside and outside the corporation have allegedly

made a killing at its expense.

All of this has sent one of the nation‘s most important institutions into a slow decline. As one

industry expert told me, ONGC is ―like a company suffering from HIV, growing internally

weak.‖ From the outside, ONGC‘s illness may be hard to detect—but this makes its condition

all the more dangerous. Even most people within the organisation don‘t realise that the

company is gradually decaying, the expert said.

ONGC has been the government‘s specialised arm for the upstream sector since 1956, and

has operated India‘s largest oil field, Mumbai High, since 1976. It has no debt, and is

exceedingly cash rich. In the 2012 fiscal year, its revenue exceeded Rs 83,000 crore; after the

government snatched Rs 50,000 crore from it to offset fuel subsidies, it was still India‘s

second most profitable company—a whisker below Reliance. At the end of the third week of

June this year, ONGC had a market capitalisation of over Rs 350,000 crore, or $60 billion,

making it the country‘s second biggest firm.

But ONGC‘s financial success derives entirely from the oil and gas it struck in the pre-NELP

era. In nine rounds of NELP auctions since 1999, ONGC has acquired more than 130

blocks—over half the total number awarded by the government. And yet, it has not been able

to sell a single drop of oil or unit of gas from any of them. Mumbai High, the crown jewel of

Indian oil fields, accounts for nearly 70 percent of ONGC‘s total crude oil production, but its

output is waning.

People within the industry are becoming aware of the corporation‘s creeping rot. Few of the

former petroleum ministers, bureaucrats, industry executives, experts and journalists I met in

the course of reporting this story had a positive forecast for ONGC. The most charitable

adjective I heard from anyone who was not an alumnus of the company was ―unlucky.‖ If the

corporation does not start producing oil or gas soon from the blocks it has won in the last 14

years, if the price of crude oil crashes or the government increases ONGC‘s share of the

nation‘s subsidy burden, the company will have a lot of red in its annual reports. Last fiscal

year, it had to dip into its cash reserves to service its debts for the first time in over a decade.

The company has enough assets to remain buoyant for years to come, but it needs to do much

more than simply stay afloat if it is going to accomplish its mission. Although it doesn‘t lack

talented personnel, it often loses them to the private sector, and it needs to incentivise them to

stay on board. More importantly, perhaps, it needs to be able to use its substantial revenues to

upgrade its exploration and production capacity. The industry expert said that, if ONGC

wants to survive, it ―has to transform itself into a technological company.‖

India‘s demand for crude oil has tripled since the economy was unshackled from the ―Hindu

rate of growth‖ more than two decades ago. According to the British oil and gas company

BP, the country‘s consumption rose from roughly 1.2 million barrels per day in 1991 to

nearly 3.7 million in 2012. During the same period, its production increased by less than a

third, to 900,000 barrels per day. India was almost self-sufficient in the production of natural

gas in 1991, but in 2012 the country‘s daily output, equivalent to over 725,000 barrels of oil,

fell more than 25 percent short of demand.

According to the industry expert, these gaps are hurting the economy and jeopardising the

nation‘s energy security. The Ministry of Petroleum and Natural Gas reports that in the

financial year ending on 31 March 2013, nearly 85 percent of the crude oil consumed in India

had to be imported, at a cost of roughly $140 billion—close to 8 percent of gross domestic

product. The country also imported $5 billion worth of liquefied natural gas. Together, the

two fuels accounted for over 30 percent of India‘s import bill that year, and were the single

largest contributor to the nation‘s $90 billion current account deficit. This year, things are

likely to be even worse, with the ongoing conflagration in Iraq driving up the international

price of crude oil, and thereby devaluing the rupee and contributing to price inflation at

home.

India doesn‘t have enough reserves to ever become self-reliant on hydrocarbon fuels. But as

long as it remains dependent on these sources of energy, ONGC has a central role to play in

helping to power the economy and insulate the country from instability abroad. According to

the industry expert, ONGC could have been among the largest oil exploration and production

companies in the world, and still has the potential to be among the finest. The corporation is

as important to India as the military, and should be a ―fortress‖ for the country‘s energy

security, he said. But the largely ―honest and competent‖ staff is now ―demotivated,‖ and the

company has refused to change. Many people—from the government to the boardroom and

on down—seem all too eager to hasten its decline.

|TWO|

ON THE “CHRONOLOGY” PAGE of its website, the Directorate General of

Hydrocarbons, the country‘s upstream regulator, reproduces an apocryphal tale of the

discovery of oil in India. The story has many variations, but they all go something like this:

seven years after Colonel Edwin L Drake pioneered the modern world‘s first commercial oil

well in the US state of Pennsylvania in 1859, a group of engineers constructing a railway

through the Brahmaputra Valley noticed an oleaginous film on the feet of an elephant hauling

logs through the jungle; they traced the beast‘s footsteps back to a seep of bubbling crude.

According to the directorate‘s website, this led to the first Indian well, ―drilled by Mr.

Goodenough of McKillop, Stewart and Co., near Jaipur in Upper Assam in 1866.‖ Thirty

kilometres to the northeast, the Assam Railway and Trading Company began spudding its

own borehole. The project‘s engineer, one WL Lake, would shout ―Dig, boy, dig!‖ at his

coolies, giving the well and the town that sprouted up around it their name—Digboi. The

project, completed around 1890, became India‘s first commercial oil well.

Under the British Raj, the Indian hydrocarbon industry—confined almost entirely to oil fields

in Assam—was the exclusive domain of imperial and private companies. But Jawaharlal

Nehru and other Indian statesmen believed that there could be ―no freedom for the country‘s

economy or its defence unless the oil industry is owned and controlled by the state,‖ as the

country‘s second minister of natural resources, KD Malviya, put it. ONGC was established in

October 1955 as the Oil and Natural Gas Directorate, a department in Malviya‘s ministry.

The new directorate worked with Soviet experts to draft a proposal for surveying India‘s oil

wealth, which became part of the Second Five Year Plan, and in 1956 India placed oil on a

list of industries to be developed exclusively by the state.

By 1963, ONGC had been elevated by an Act of Parliament to a commission with statutory

powers, and was conducting seismic surveys in the Gulf of Cambay to explore the possibility

of producing hydrocarbons offshore. The commission had already made a major discovery in

the onshore Cambay Basin in 1958, and by the end of 1970 it was producing 75,000 barrels

of crude per day.

The potential economic and security benefits of a robust domestic fuel industry were thrown

into sharp relief in the early 1970s. Ram Naik, the petroleum minister from 1999 to 2004,

told me that during Bangladesh‘s Liberation War, in 1971, foreign governments pressured

international companies to threaten India with oil embargoes. (A few other reports claim that

the companies refused to sell fuel to the Indian military.) Naik said this was the primary

reason that Prime Minister Indira Gandhi initiated a takeover of India‘s remaining private oil

companies, including the wholly-owned subsidiaries of international ―oil majors‖ such as

Burmah-Castrol and Royal Dutch Shell, in 1974. (Most writing on the period attributes

Gandhi‘s nationalisation drive to the economic havoc wrought by the 1973 global oil crisis,

and subsequent spikes in inflation and the country‘s import bill.)

Around the time of the 1971 war, ONGC began surveying off the coast of Bombay with the

help of the USSR. Finding exploitable hydrocarbon reservoirs, or ―pays,‖ which are often

thousands of metres below the surface, is an uncertain business. Discussing its aleatory

nature, Sunjoy Joshi, the director of the Observer Research Foundation, a Reliance-funded

think tank, told me a story he heard from Subir Raha, a former chairman and managing

director of ONGC. ―I don‘t know if there is any record of this story,‖ Joshi said, before

relating how Raha, who died in 2010, used to say that the Russians had been engaged to do

the surveys far out to sea, ―where geologists thought there was better possibility of finding oil

and gas. But they had to justify coming to the shore more and more often, to screw all the

girls in Kamathipura,‖ Mumbai‘s oldest and largest red-light district. Moving their operations

closer to land, they eventually found India‘s most prolific oil field to date. ―The discovery of

Mumbai High,‖ Joshi continued, chuckling, ―owes a lot to those poor women.‖

Sagar Samrat, anONGC-owned exploration rig, struck oil in what was then called Bombay

High in 1974. The block was developed with impressive speed, and started producing oil

commercially in less than 24 months. Between 1975 and 1990, the company‘s oil and gas

production shot up more than ten-fold to the equivalent of almost a million barrels per day.

Thanks to ONGC‘s production, India‘s dependence on imported crude oil dropped by more

than a quarter, even as the country‘s consumption tripled. ―ONGC also grew dramatically in

size,‖ Varun Rai, a professor at the University of Texas at Austin, recently wrote. ―Starting

from just 450 employees at formation in 1956, ONGC swelled to over 47,000 employees by

1990.‖ These were ―ONGC‘s golden years.‖

ALTHOUGH ONGC’S OPERATIONS EXPANDED dramatically in the decade and a

half after it first struck oil in Mumbai High, the commission was required to hand most of its

revenues over to the state. By the beginning of the 1990s, it was as broke as the rest of the

nation. In 1991, the same year that India borrowed $2 billion from the International Monetary

Fund, ONGC took $450 million dollars in loans from the World Bank to develop its

infrastructure in the Bombay Offshore field. Narasimha Rao‘s Congress-led government

initiated sweeping economic reforms and, under pressure from its international creditors,

began to deregulate the upstream sector. ONGC was soon reorganised as a limited company,

with the government as the single largest shareholder. (Today, the government owns just

under seven-tenths of the company.) Then, in 1998, the New Exploration Licensing Policy

was announced, paving the way for the first round of auctions the following year, and

ushering in a new phase in ONGC‘s history.

Over the next half decade, the corporation began to grow into the financial powerhouse it is

today. But the money it made was not a function of its performance; instead, its revenues

depended heavily on factors outside its control. At the same time, its interests were repeatedly

sacrificed in order to lure private players to the country‘s oil and gas fields, and soon its

coffers were raided to help pay the country‘s bills.

One of the ways the government used ONGC was by forcing it to bid for oil and gas blocks

under the new licensing policy. The petroleum ministry and the hydrocarbons directorate felt

they could artificially stimulate global interest in Indian fields if the first NELP auction was

fully subscribed. ―The more bids, the more blocks that are taken—they think it‘s a great

achievement,‖ the former ONGC board member told me. ―If the bids received were very few,

they used to call ONGC and Oil India and ask them to bid for more. And they would take the

credit for it.‖ For every block they unwillingly bid for and won, the companies had to deposit

bank guarantees and meet the minimum work programmes—or pay penalties. These penalties

were small in comparison to ONGC‘s revenues, but the corporation still had to divert its

attention and resources to areas it didn‘t believe would be profitable. The forced-bidding

method was applied in further NELP rounds as well. Ram Naik admitted to me that he

pushed the state oil companies to bid for more blocks, but he said it was to encourage them to

increase their production and exploration activities. The former board member said the

practice continues today.

For a time, the ministry‘s pricing policy also put the corporation at a disadvantage. Between

1999 and 2001, ONGC got considerably less than the international price for both crude oil

and gas, while its private competitors were paid the full amount. This was reversed in 2002,

when Naik announced that ONGC and OIL would be allowed to charge the market rate for

crude oil. Around the same time, international oil prices began an unprecedented six-year

climb, from an average of $25 per barrel in 2002 to nearly $150 per barrel in 2008. In the

new pricing policy‘s first year, ONGC‘s revenues from the sale of crude soared by Rs 10,000

crore, raising the company‘s profit by 70 percent. Between 2001 and 2008, the company‘s

total revenues grew by 150 percent.

As more and more money flowed into ONGC, it became an attractive source of funding for

government welfare schemes. In 2004, on the cusp of the shift from the BJP-led National

Democratic Alliance government to the Congress‘s United Progressive Alliance regime, the

government announced that ONGC, along with OIL and the national ―downstream‖

companies—those involved in refining and marketing oil and gas—would have to plug the

hole created by a Rs 18,000-crore annual fuel subsidy. ONGC‘s share of this was 28 percent.

If, in the midst of the forced bids and the revenue drain, ONGC appeared to thrive, it had

more to do with mounting global oil prices than with the corporation‘s actual performance.

Since 1996, the company‘s total oil and gas output has more or less stagnated at a level

equivalent to a million barrels of oil per day. Its total share in the production of India‘s oil has

dropped by a third, to 60 percent. Today, ONGC is like the scion of a rich zamindari family,

living off the dividends from his inherited landholdings—but failing to adapt to a world in

which the system that created and sustained his wealth no longer exists.

Despite its failure to extract any oil or gas from its new fields, ONGC likes to boast about its

―reserve replacement ratio,‖ the rate at which it acquires new hydrocarbon reserves to replace

those depleted by production. An RRR of over one means a company is discovering or

gaining access to more oil and gas than it has pumped out—essential for the future health of

any upstream company. In financial year 2013, ONGC claimed an impressive RRR of 1.84.

But the corporation‘s figures are disingenuous. Hydrocarbon reserves are divided into three

categories, depending on their likelihood of being recovered: proved reserves, from which oil

or gas can definitely be extracted using the best available technology and expertise; probable

reserves, which have a 50 percent probability of being successfully tapped; and possible

reserves, which have only a 10 percent chance—or less—of producing commercial oil or gas,

even with all the technology and expertise in the world. The Securities and Exchange

Commission, which regulates US markets, mandates that RRR only take into account proved

reserves. In 2004, Shell settled with the SEC for $120 million for ―massive overstatement‖ of

its proved reserves and a ―misstated‖ RRR. But the Securities and Exchange Board of India

does not have similar regulations, and ONGC has been including all three classes of reserves

in its ratio.

In other words, the company is inflating its success—which turns out to be negligible—and

misleading investors. Its RRR on proved reserves in financial year 2013 was a sliver-thin

1.08. In the 2011 financial year, ONGC declared that it had found 75 percent more fuel than

it produced, when in fact it produced 30 percent more than it accreted in proved reserves. In

2013, the Comptroller and Auditor General further criticised ONGC‘s RRR, pointing out that

in previous years the ratio had only stayed above one because of a dip in production.

I asked RS Sharma, ONGC‘s chairman and managing director from 2006 to 2011, why the

company seems to have failed in its founding mission over the last two decades. ―It‘s a very

important issue,‖ he started. When NELP was introduced, he explained, ONGC already had

exploration licenses in over two hundred oil and gas blocks; it was decided that these would

not be renewed once they expired, but opened to competition through the NELP auctions.

―Before the expiry of those licenses, all resources, rigs, etcetera had been diverted to those

areas‖ so they could be ―optimally explored.‖ The licenses for the last of those blocks

terminated in 2013, he said. ―Now the priority is going to NELP.‖

WHY HASN’T ONGC PERFORMED BETTER? It seems partly to be a case of death by

a thousand cuts—a host of private interests trying to reap their portion from the corporation‘s

wealth. It‘s a ―doodharu‖ company, a former ONGC director from the NELP era told me this

March. ―Doodharu meaning milking.‖

I met the director in a small hotel room in one of Delhi‘s exurbs, where I sat with him for

several hours while he smoked cigarettes and told me about the factors that have hindered

ONGC‘s growth. One of these, he suggested, was the amount of money cycling through the

company, which, in combination with the bureaucracy that governs ONGC, makes it an

attractive target for corrupt employees and contractors. The company has an annual budget of

Rs 30,000 crore for tenders that range from Rs 200 crore to Rs 10,000 crore, he said. ―So, big

game there.‖

He continued, ―If money is siphoned off, naturally you don‘t expect the work will be done

according to the contract.‖ Work can be shoddy, and there are often delays and cost overruns.

As a result, contractors expect to pay penalties, and they surreptitiously ―load‖ these

―liquidated damages‖ into their bids. ―Right from day one they are mentally prepared,‖ he

said.

A week earlier, I had met the industry expert who compared ONGC to an HIV sufferer, in a

south Delhi café. He told me that a ―contractor lobby‖—made up of technical consultants,

suppliers, and construction firms—is ―running the company.‖ Those who provide big-ticket

items like rigs, pipelines and platforms have a ―nexus with politicians of all hues and

colours.‖ The former ONGC director agreed: ―I am not saying which party or which

politicians, but it is so common.‖

Leases on various kinds of exploration and drilling rigs are a large part of ONGC‘s annual

contracts; a single one can cost up to $500,000 a day. According to the industry website

RigZone.com, in the third week of June, ONGC was operating 36 offshore rigs—placing it in

the top ten among upstream companies worldwide. The South Asia correspondent for a

respected industry publication told me that a lot of ONGC rig tenders are shrewdly worded

with the final beneficiary in mind. ―They‘re tailor-made.‖

The former board member who told me about the KG D6 bid begrudgingly admitted that this

was commonplace. ―Even in my time there were reports of this. I am not saying this didn‘t

happen. This might have happened. And this was happening at ONGC even before my time.‖

He added, ―I don‘t say this is totally eliminated.‖

He blamed this partly on the way bidding works. The government mandates that the lowest

bidder must be awarded a given contract. He said this is the ―biggest curse for public sector

companies—making everybody equal and then choosing the cheapest of the lot. The private

companies would have gone the other way. They would say, ‗OK, I must get the best,‘ and

then try to negotiate the rate down. But here, no.‖ A contractor could be ―Rickety Rig,

standing on one leg,‖ but if he‘s the lowest bidder ―you have to take it—that‘s it. There might

be a brand new rig available at one rupee more. You can‘t even talk to that contractor. If you

talk to him you will be taken to court.‖ (Sometimes, however, the ministry pressures the

board not to award contracts to certain companies, even if they are the lowest bidders, the

former ONGC director said. In such cases, the tender process has to be repeated.)

With concerns about quality or technical expertise set aside, contracts can be swooped up by

a wide range of bidders. ―I think everybody is involved, even people who prepare the

specification,‖ he continued. ―I know because I have seen it myself. The biggest problem is

right at the beginning—you make a broad-based specification to include unscrupulous

people, and that is where the trouble starts.‖

The industry expert went a step further: ―All postings go through a political process—in some

cases they‘re even auctioned.‖ He said that the politicisation of ONGC was one of the main

causes of its ills, and that some of company‘s directors were partners in this. Continuous

interference—what he called ―crony socialism‖—erodes the company‘s limited autonomy.

Even though it‘s one of the country‘s seven ―Maharatna‖ public sector undertakings, which

are promised more authority over their decisions than other state-run companies, the ONGC

chairman and managing director tends to have considerably less power than his international

counterparts. For example, the chief of Petrobras, Brazil‘s national oil company, effectively

decides the country‘s oil and gas policy, I was told.

Other people blamed ONGC‘s problems on too much oversight. Many company directors and

senior executives sail through their tenures without taking bold decisions that might lay the

groundwork for the company‘s future, supposedly because they don‘t want their pensions

suspended when they leave; the constant threat of ―The Three Cs‖—the Central Bureau of

Investigation, the Central Vigilance Commission, and the Comptroller and Auditor General—

induces paralysis. The former petroleum secretary and CAG VN Kaul rejected this

explanation, calling it an argument of the ―para-dishonest‖—those who want to be corrupt,

but are scared of the consequences.

MUMBAI HIGH LIES IN SHALLOW WATERS 160 kilometres west-north-west of the

city, in a pericratonic basin on the edge of the Arabian Sea. According to the former ONGC

chairman and managing director Sudhir Vasudeva, it is one of the ―most difficult of fields in

the world‖—1,200 square kilometres consisting of 15 or 16 floors of overlapping reservoirs.

―So it is like a club sandwich, with so many layers of fillings inside.‖ The industry expert I

spoke with told me there were many ―vultures‖ in the Indian upstream sector—domestic and

international private players who want the company to die so they can pick over its assets, of

which this oil field remains the most prized.

As an example, the expert mentioned a letter that Vasudeva co-wrote with Shell India‘s

chairperson, Yasmine Hilton, to the petroleum ministry, proposing a joint venture to explore

the seabed around Mumbai High. ―Why does ONGC need Shell in that area?‖ the expert

asked, not seeking an answer but to illuminate his point. ―Why?‖

Vasudeva, who retired from ONGC on 28 February, told me that the letter was written about

a year ago. He had taken it straight to the petroleum ministry, bypassing ONGC‘s board.

―They thought there is a lot of potential in the area around Bombay High. With Shell‘s

technology, they can bring a lot of value to the table.‖ Even after forty years, he added, ―we

cannot say yes, we have mastered the field. If somebody has better technology and has done

this kind of work somewhere else and they can bring value to table, there is no harm in doing

this.‖

But the industry expert said that the company doesn‘t need anybody in the Mumbai High

area. He compared Shell‘s strategy to first gaining entry to someone‘s drawing room ―so that

you can later take over the bedroom, too.‖ The ministry rejected the proposal.

If Vasudeva is right, however, and ONGC cannot master the area around the oilfield that it

has managed independently for the past four decades, how can it successfully expand its

deep-water projects to areas where it has less experience, and achieve the boost in production

it desperately needs?

ONGC Videsh Limited, ONGC‘s wholly-owned international subsidiary, represents

something of a worrying answer. OVL buys into, or ―farms,‖ international assets around the

globe. Out of 36 exploratory assets farmed by OVL since April 2004, at a cost of more than

Rs 6,000 crore, only five have been successful. Eight of the 36, into which more than Rs

1,000 crore were sunk, had to be completely abandoned.

Then there is the case of Imperial Energy, a UK-headquartered energy firm with assets in

Russia. In July 2008, OVL offered to buy Imperial for $2.1 billion based on an estimated

output of 80,000 barrels of oil per day by 2011. The average price of crude at the time was

$149 per barrel. Then the global financial crisis struck, and within five months the price of

crude had crashed to less than $62 per barrel. ONGC and OVL wanted to renege on the deal,

which had now become significantly overpriced. ―We wanted to retreat on Imperial. So much

so that a delegation was sent by the Indian government to London,‖ an anonymous ONGC

executive reportedly told Mint in October 2012.

People outside ONGC also raised concerns. Surya Sethi, the government‘s principal adviser

for power and energy at the time, was among them. He attended a committee meeting that

included the petroleum, finance and law secretaries, at which a final decision was to be taken.

According to him, he objected to the deal and said the country should fight it out in court, but

the petroleum ministry, represented by the petroleum secretary RS Pandey, did not agree. RS

Sharma, the former ONGC chairman and managing director, told me that Attorney General

Milon Banerji‘s opinion was sought. He said Banerji suggested that if OVL pulled out now, it

would be an embarrassment for the country.

The committee approved the deal, which went through in January 2009. By the following

year, output estimates for the Imperial assets had come down to 45,000 barrels per day.

(Today, it is producing only 15,000.) The CAG found that OVL had incurred a loss of nearly

Rs 1,200 crore, or roughly $236 million, between January 2009 and March 2010, because it

could not achieve its original production estimate. In July 2012, the Russian conglomerate

Sistema JSFC ―valued Imperial Energy‘s assets at $500 million, a quarter of the sum ONGC

paid to buy the explorer,‖ Mint reported.

After Jaipal Reddy became the oil minister, in 2011, his ministry asked ONGC to open an

inquiry into the Imperial Energy purchase, a former petroleum secretary told me. The

ministry wanted to know if vested interests had a hand in the deal, or whether the company

perhaps failed to conduct its due diligence. An Audit and Ethics Committee was set up,

headed by an independent director on ONGC‘s board. Vasudeva said that he wasn‘t sure if

the committee had submitted its report to the government yet. When I contacted Arun

Ramanathan, who was part of the committee, he said he didn‘t want to discuss the findings

before they were shared with the relevant authorities. It‘s still unclear when the report will be

made public.

|THREE|

SUBIR RAHA was the chairman and managing director of ONGC from 2001 to 2006. He

passed away from lung cancer in February 2010. One obituary described him as ―an

embodiment of qualities that government-run organisations … are not supposed to display—

vision, aggression, efficiency and exceptional dynamism.‖ He was also at times a critic of

Reliance‘s business practices under brothers Mukesh and Anil Ambani.

When the journalist Paranjoy Guha Thakurta met Raha in September 2009, the former oilman

had undergone several rounds of chemotherapy. ―Still,‖ Thakurta wrote in his recent book,

Gas Wars: Crony Capitalism and the Ambanis, ―he was remarkably alert. His words poured

out in torrents; he was crystal clear about his convictions and his conclusions.‖

This was Raha‘s final interview. Among other things, Thakurta and he discussed the first

NELP auction, in which Reliance bagged KG D6. Raha had heard that Anil Ambani went to

Hyderabad before the bids were due, to solicit information about the Krishna Godavari oil

field from a retired ONGC official. ―The gentlemanly officer unpacked a few old papers from

a rusty iron trunk,‖ Thakurta wrote. The papers apparently provided Reliance with ―crucial

clues about the reserves of oil and natural gas that lay beneath the bed of the Bay of Bengal.‖

The former ONGC board member who told me about the corporation‘s bid for KG D6

confirmed that some former officials might have had detailed reports on the basin. In fact, he

said, the company had surveyed the area and wanted to begin exploring there in the mid

1990s, before NELP set in. But the government‘s procurement process created an

insurmountable obstacle: at the time, only one firm in the world had a deep-water rig capable

of drilling the necessary exploratory wells, but the law required that a public sector company

solicit at least three tenders for any project. The red tape scuppered ONGC‘s plans, and the

KG blocks were eventually auctioned.

Like the board member, Raha had also heard that ―secret information‖ about the sealed

ONGC bids ―had been leaked out, though he could not independently confirm who had done

this and for whom.‖ When I asked a petroleum secretary from the pre-NELP era if he knew

anything about this episode, he laughed. I got the sense he found me naive. He informed me

that when Mukesh and Anil‘s father, Dhirubhai Ambani, was active, it was said the country‘s

national budget could be in Dhirubhai‘s hands before it was tabled in the parliament. ―The

ONGC bid is nothing compared to that.‖

By chance or by design, perhaps no single institution has gained more from government

interference in India‘s largest public sector company than Reliance. For over two decades, the

ministry, and then the directorate of hydrocarbons, has bent the rules in ways that favoured

the Ambanis‘ and hurt the national oil company.

The fortunes of ONGC and the Ambanis have been intertwined since the corporation took out

its loan from the World Bank in 1991. As a condition of the deal, the bank required the

Narasimha Rao government to open the upstream sector to private competition; the

government decided to offer joint ventures on the country‘s operational hydrocarbon blocks.

The petroleum ministry invited bids for 12 mid-sized oil and gas fields, six each from ONGC

and OIL, in 1992. A consortium of Reliance and a subsidiary of the US energy colossus

Enron won two of them—Panna-Mukta, and Mid and South Tapti, which sit 100 kilometres

off the Maharashtra coast. The fields had been discovered and partially developed by ONGC

at substantial cost. The joint venture—in which ONGC owned 40 percent, and Reliance and

Enron together owned 60 percent—ultimately enriched Reliance at ONGC‘s expense, and set

a pattern for the relationship between the two companies.

From the beginning, the tender process for the 12 fields was beset by irregularities. In the

early 1990s, for example, Panna-Mukta was assessed by ONGC to contain gas and oil

equivalent to roughly 400 million barrels of crude. In the run-up to the auction, this figure

was revised downward several times. By the time the ministry prepared the final bid request,

the estimate had dropped by 75 percent. This undervalued the find, and thus reduced the price

of buying into a joint venture. In addition, a Comptroller and Auditor General report from

1996 found that the evaluation criteria for bids were neither ―complete‖ nor ―unambiguous.‖

In principle, this left room for the ministry to award contracts on a preferential basis. There

were no records to prove that all the bids were received by and opened on the deadline, 31

March 1993; the bids weren‘t read out in front of all the competitors, as is standard practice;

and the names of the ministry officials who assessed the bids weren‘t recorded.

Before long, major allegations of corruption surfaced. In 1996, the Central Bureau of

Investigation began pursuing a 1993 bribery case in which members of the Congress-led

ruling alliance allegedly paid the Jharkhand Mukti Morcha to help defeat a no-confidence

vote and keep the government intact. In the course of that investigation, the CBI questioned

Brijnath Safaya, the additional private secretary to Captain Satish Sharma, the minister of

petroleum at the time the joint ventures were awarded.

In a statement recorded by inspector Harish Sharma, and reported by Outlook, Safaya

claimed that in the months before the contracts were awarded he had been at Satish Sharma‘s

house to receive suitcases stuffed with roughly Rs 13 crore. He also said that frequent visitors

to the house included Mukesh Ambani, and the heads of other private companies whose bids

were eventually successful. Reliance, Safaya told the CBI, sent Sharma a total of Rs 4 crore

through one S Raman in 1993—Rs 1 crore in June, Rs 1 crore in October and Rs 2 crore in

December. The heads of Essar and Videocon also allegedly sent cash. At least some of this

money is thought to have been routed to the JMM. (Safaya later retracted his statement.)

Questions about ONGC‘s own complicity also emerged. A team of corporation executives,

including the then chairman and managing director, SL Khosla, had assisted Sharma‘s

ministry in evaluating the bids. Just 48 hours after the contracts were awarded, Khosla

jumped ship from ONGC and joined Reliance. A small clutch of senior executives followed

him. The former board member told me that when a parliamentary committee investigated the

case, a new ONGC leadership discovered that many important bid documents were missing.

(Reliance has since welcomed a steady flow of former ONGC employees. Among the most

prominent are Ravi Bastia and Atul Chandra. Bastia, a geologist, moved to Reliance in the

1990s and played a crucial role in the discovery of gas at KG D6. He was awarded a Padma

Shri in 2007. He left Reliance in 2012. Atul Chandra, the president of Reliance‘s

international operations and an honorary advisor at the Observer Research Foundation, joined

the Ambanis‘ firm after retiring as the managing director of ONGC Videsh Limited.)

The CAG could not quantify the total loss to the exchequer and ONGC, but it mentioned

several amounts that the corporation should have recovered from its private partner. This

included a reimbursement of Rs 680 crore for the capital investments ONGC had made to

develop the Panna-Mukta field. ONGC also had to pay taxes and royalties to the government

totalling Rs 1,428 per tonne of oil, which was ―liable to go up‖; Reliance-Enron had been

granted a 25-year fixed rate of Rs 1,381 per tonne. Perhaps most painfully for ONGC‘s

bottom line, the government only paid the public sector company Rs 1,741 per tonne for oil,

but dished out Rs 4,545 per tonne to the Reliance–Enron consortium.

In mid 2012, it was announced that total production from the Panna-Mukta and Tapti fields

had crossed the 500 million barrel mark—five times the estimate on which the bids were

based.

THINGS ONLY GOT BETTER for Reliance with the introduction of the New Exploration

Licensing Policy. The former ONGC director told me that during his tenure under the NELP

regime, both the Directorate General of Hydrocarbons and the petroleum ministry—then

headed by VK Sibal and the Congressman Murli Deora, respectively—made at least three

unconventional decisions that disadvantaged ONGC and awarded contracts to Mukesh

Ambani.

Bids for oil and gas blocks are given points according to various criteria, he explained. One

of these is meterage, the depth of the wells a company offers to drill. In principle, the deeper

the better—but every hydrocarbon field has a natural ―basement,‖ based on its geological

ability to retain hydrocarbon fuels, beyond which it doesn‘t make sense to go. In the Cambay

Basin, the director said, ―everybody knows that the depth cannot be more than 3,500 metres.‖

But Reliance ―bid 5,000 metres stroke basement‖—whichever came first. ―They got marks

for 5,000, whereas ONGC couldn‘t write more than 3,500 because we knew we would hit the

basement below that.‖

There are also points for how much territory a contractor will explore with three-dimensional

seismic surveys. In another NELP round, Reliance offered to survey more than the total area

of the block on offer, the director claimed. ―So they got marks on that.‖

―First time we objected for basement,‖ the director continued. Sibal ruled against them.

―Second time we objected for this. We were again ruled out.‖ The directorate acknowledged

that there were loopholes in the bidding process and said they would be rectified in

subsequent rounds, but it didn‘t invalidate Reliance‘s winning tenders.

―Third time was the worst,‖ the director said. In the early stages of a project, a contractor gets

the lion‘s share of profits in order to offset the risks and costs of exploration and production.

But the government is also supposed to get a cut. In theory, the bidding process should make

that cut as large as possible. Reliance ignored this logic by proposing to keep all the money

generated in the first phase of production. ―Nowhere in the world is it like that,‖ the director

said. ―It is always like there has to be the government‘s share of profits and your share—and

then there is the cost recovery part.‖ Unless the field proves to have ―very large‖ reserves, the

project won‘t move to the next phase, and the ―government will not get a single penny.‖

―I said nowhere in the world will be it accepted,‖ the director continued. ―The government

will give it zero points. But it happened that way‖—Reliance got the block. ONGC

complained to the ministry again, but nothing happened. The director believed that important

bidding documents were leaked to Reliance, which was in effect told, ―These are the areas

kept for you.‖

Today, Sibal works as an independent consultant. When I met him, in January, he denied all

such allegations and said he had done nothing wrong. He alleged that people close to Anil

Ambani had propagated false information in order to damage Mukesh Ambani at the height

of the brothers‘ well-publicised feud, which began sometime after their father‘s death, in

2002. A close associate of Anil‘s admitted that information was pushed by their camp at the

time, but denied that it was incorrect. Since there is now a truce between the brothers, he did

not share anything more. The Supreme Court has directed the CBI to investigate claims that

Sibal gave preferential treatment to Reliance, and the agency has also charged him in an

unrelated corruption case—but so far none of the allegations against him have been proved.

THE MAJOR FOCAL POINT for controversy in the relationship between ONGC and

Reliance remains KG D6, India‘s most famous natural gas block. Even the site‘s name

announces the Ambanis‘ influence: the ―D‖ in D6—and in the names of other blocks in the

Krishna Godavari Basin—stands for ―Dhirubhai.‖ If there‘s a strong argument to be made

that capitalist competition is a necessary antidote to the malaise at ONGC, it‘s also clear from

the story of D6 that private participation in the upstream sector is fraught with problems of its

own.

When Reliance first struck gas in D6, in 2002, the company said it was the greatest natural

gas discovery in India. It neglected to add the caveat that this was true only for that year.

Subhir Raha told Thakurta that ―Reliance misled the market‖ to raise capital. ―ONGC had

discovered larger gas reserves along the west coast of India, but in different years,‖ Thakurta

wrote.

After reporting $8.8 billion in capital investments to develop the block (all of it recoverable

under a profit-sharing agreement with the government), Reliance promised to pump an

astonishing 80 million metric standard cubic metres of gas (equivalent to roughly 530,000

barrels of oil) from the site every day—enough to satisfy more than half the country‘s gas

needs. But the block‘s output peaked in 2010 at three-quarters of that amount, and began

steadily dropping. This year, it is only producing the equivalent of 80,000 barrels of oil per

day.

The allegations against Reliance include inflating investment costs in the block in order to lay

claim to a greater share of revenues, and artificially delaying gas production. These claims,

which Reliance denies, are the subject of an ongoing arbitration battle between the company

and the government. Unofficially, Reliance is accused of hoarding fuel while it waits for an

imminent price hike, which was to take effect at the beginning of April and double the price

of natural gas. The Election Commission deferred the hike because of the general elections.

In response to the delay, Reliance in May filed its own arbitration notice against the

government.

Others believe that the block was never as prolific as Reliance proclaimed, and that all the

company‘s grand announcements were made to boost its market value. Still others propose

that D6 is underperforming for less nefarious reasons—that Reliance was inexperienced in

handling the ―tender‖ deep-water block, and has ruined it by collapsing the reservoirs. For its

part, Reliance has issued statements that unforeseen geological characteristics of the basin

caused the drop in production.

The controversy does not end at the borders of Reliance‘s block—there is also ONGC‘s

lawsuit accusing Reliance of stealing reserves from the public sector company‘s adjacent

sites. Two former ONGC chairmen, RS Sharma and Sudhir Vasudeva, told me this was

geologically possible. Sharma pointed out that it has happened in the past between sovereign

nations—including Kuwait and Iraq, where it led to war.

Vasudeva said that attempts are being made to establish whether Reliance has indeed pumped

gas out of ONGC‘s blocks. The Directorate General of Hydrocarbons ―is mediating, the

ministry is mediating, we have given information, and they have given information.‖ Of late,

he said, Reliance had ―not been cooperative,‖ but he was confident that the issue could be

resolved. On 23 May, Reliance issued a press release saying it was ―saddened‖ by ONGC‘s

accusations, and it denied ―the claim of apparent ‗theft‘ of gas.‖

But the petroleum secretary from the pre-NELP era speculated that this was part of a design

by Reliance and its government cronies. He said that when VK Sibal and Murli Deora were

in office, ONGC was made to squat on its blocks, without producing, so that Reliance could

siphon off its gas.

Various hurdles were reportedly erected before the public sector company in order to allow

Reliance a substantial jumpstart in gas production. On 2 March 2007, RS Sharma, the ONGC

chairman and managing director at the time, wrote a letter to the then petroleum secretary,

MS Srinivasan, accusing Sibal of ―blatant bias‖ and of running a ―malicious campaign‖

against the public sector company. (Just a year earlier, Raha, too, had written to the

petroleum secretary about Sibal‘s ―sarcastic‖ and ―derogatory‖ remarks ―denigrating the

company in public and media.‖) The previous month, Sibal had refused to officially

recognise ONGC‘s discovery of gas in D5. Sharma claimed this led to a ten-day free fall in

the company‘s share prices, which wiped Rs 23,500 crore off its market valuation. He added

that Sibal had recognised similar discoveries by private players (hinting at Reliance), but had

applied different norms to ONGC and had levied ―highly excessive‖ penalties on the

company.

ONGC also tried to bring in the global oil giants Petrobras and Statoil as partners on D5.

Petrobras in particular has significant expertise in deep-water exploration and production, and

―ONGC was very keen to have an experienced global player,‖ Sharma told me. But the

petroleum ministry, under Deora, dragged its heels on approving the joint venture, and

ultimately the international partners pulled out in frustration, turning their attention to better

prospects in other parts of the world.

Deora‘s ministry never explained why the decision was not taken in a timely manner. I asked

the former ONGC director if this had any effect on ONGC‘s prospects in D5. ―Yeah, it

hurt—it hurt very badly,‖ he said. If Petrobras had been involved in D5 and two other blocks

they were interested in, ―things would have been different, totally.‖ He said that he and

several of his senior colleagues believed the government was trying to ―downgrade‖ ONGC

to boost private players. ―Mr Deora was trying to help out Reliance. His team was a Reliance

team.‖

Reliance‘s spokesperson, Tushar Pania, declined multiple phone and email requests for an

interview. Messages to the email address listed on Deora‘s Rajya Sabha web page went

unanswered. I also made repeated calls to one of his two official phone numbers, but it

seemed to be disconnected; when I got through to someone on his other listed line, I was told

I had the wrong number.

When I asked a petroleum secretary who served under Deora if the minister had ties to

Reliance, he scoffed and said, ―He was running the ministry for his nephew; Mukesh calls

him uncle.‖ I asked him if he had heard the terms ―R positive‖ and ―R negative,‖ which a

beat reporter had told me were used to describe petroleum ministry officers‘ affinities with

Reliance. He replied, ―In that ministry, you can either be R neutral or R positive—not R

negative.‖

|FOUR|

WHATEVER THE CONSTELLATION of forces holding ONGC back—the contractor

lobby, the para-dishonest, the vultures, the socialist cronies, Reliance and the Ambanis, the

government itself—it‘s clear the corporation has been significantly weakened. In March, I

went to meet Sudhir Vasudeva at the house allotted to him as the chairman and managing

director of ONGC, in south Delhi‘s tony Panchsheel Park. In his drawing room, I noticed at

least half a dozen statuettes and images of Ganesha. Vasudeva has a neatly cropped but bushy

moustache on a chubby, fair face, and an authoritative personality. Though he had retired

from ONGC ten days earlier, he still seemed to see himself as the boss. Two mobile phones

rang and beeped throughout our hour-long meeting.

Vasudeva painted a rather dreary picture of the economic health of ONGC. ―See, today the

average cost of production is in excess of $40 a barrel, and that is because we are producing

predominantly from fields that are between 35 and fifty years old.‖ He said fields of ―this

vintage‖ usually decline at a rate of 7 to 8 percent per year, but ONGC has slowed that to

about 2 percent through investments in infrastructure, ―whether it is pipelines or wells or

surface facilities.

―All these are adding some production, but it is not really commensurate with the kind of

investment which is being made,‖ he continued. ―And therefore the costs are increasing at a

rate of something like 7 to 8 percent every year.‖

Surya Sethi, the government‘s former energy adviser, said that when he started in the role in

2001, ONGC‘s cost of extracting each barrel of oil or the equivalent amount of gas was $4 or

$5. By the time he left, in 2009, recovery costs had reached $36 per barrel, partly because

ONGC kept ―spudding dry wells.‖

Costs have only gone up since then. In addition, ONGC is now paying for more than 36

percent of the nation‘s fuel subsidies. Until last year, downstream companies shared a third of

the total costs, but their profits have been deflating to untenable levels and the ―entire burden

is shifting‖ to exploration and production companies, Vasudeva said.

―Year before last we got some $53 or $54 per barrel,‖ he continued. ―Last year we got only

$47.‖ The rest of the international price of crude, which was roughly $100 per barrel, went to

paying for subsidies. ―This year, in the first three quarters, we have got something like only

$44, so the margin is very, very thin. If the cost of production is in excess of $40 and we are

only getting $44—it is not really getting us enough money.

―With $44, it is just not possible to sustain this thing,‖ he went on. ―We have been telling the

government that we must get a minimum of $65. Then only we will be able to generate

enough so that we can support our old fields‘ revival, and new fields which are coming up.‖

Vasudeva told me that ONGC had lost Rs 140,000 crore due to the subsidies. ―With Rs

140,000 crore OVL would be three times bigger than what it is today, because no project of

ONGC has ever suffered for want of funds,‖ he said. ―So all this money, had it been available

in our coffers, would have only gone for the expansion plans of OVL and others.‖

Even at $65 per barrel, the government would still be getting a fantastic deal, Vasudeva

argued. ONGC already pays $33 per barrel to the government in various duties and fees, so

the true cost to the country would only be $32 per barrel. On the other hand, if ONGC goes

under, or its output precipitously declines, the government would have to pay the full

international price of crude, which is three times as high. Vasudeva estimated that this would

cost the country an additional Rs 325,000 crore, or $54 billion, over twenty years.

The situation with natural gas is in some ways even worse. The government pays ONGC only

four-tenths of what it pays private companies for every unit of gas, and this covers only half

of the corporation‘s cost of production. Some say the hike in gas prices, which is now slated

for September, will redress this; others say ONGC won‘t get the new price at all.

Sethi had a slightly more cynical take. I met him in the lobby of the Oberoi hotel in Delhi,

where he had just finished attending a conference on energy. ―People were saying, ‗The price

of gas will not increase only for Reliance—even ONGC will get it,‘‖ he said. ―ONGC will

get it upfront, but the government will snatch it away with the other hand,‖ by passing on

more of the subsidy burden to ONGC. He said that when the price hike comes into effect, the

government will have to increase subsidies for fertiliser producers and power plants, the main

consumers of natural gas. ―As it is, ONGC is paying one-third of the total, which Reliance

doesn‘t pay.‖ He added, ―You might as well just write a cheque for that amount to Reliance,

instead of going through this charade.‖

Sethi said he once asked the members of a cabinet committee meeting how they could dare to

hurt ONGC‘s profits and productivity, and minority shareholders‘ interests, by pushing the

subsidy burden so high. ―I said that I would buy one share of ONGC and take the government

to court.‖

Vasudeva worried that the government and the public didn‘t understand the long-term

dangers of undermining ONGC. ―Having done so much, it is not being appreciated by

anybody,‖ he said. ―The consumer isn‘t aware that the company has paid so much to make

fuel available to them at affordable prices, and what the cost of all this is.‖

India still has a poor, developing economy, RS Pandey, the country‘s petroleum secretary

between 2008 and 2010, told me when I met him this March. A few days earlier, he had

joined the BJP. Pandey compared the government to an impoverished mother, and public

sector companies like ONGC to her children. ―A poor parent gives milk to her child, but also

forces it to indulge in child labour.‖ The milk is ONGC‘s profit, earned from the country‘s

natural resources; the subsidy is child labour. Pandey said that this is done for the family‘s

survival.

WHEN THE PRODUCTION from KG D6 dropped below 30 million metric standard cubic

metres of gas per day (the equivalent of roughly 180,000 barrels of oil), in the 2013 financial

year, the Directorate General of Hydrocarbons finally took action against Reliance. Because

the company was failing to meet its contractual targets, the directorate ruled that it would not

be reimbursed for $1 billion of the $8.8 billion it had invested into the block. In 2013, the

directorate added penalties that raised this amount to almost $1.8 billion. It was one of the

few attempts the government has made to check Reliance‘s questionable actions in D6.

Reliance responded to the original ruling by filing an arbitration notice against the

government. In 2012, while the proceedings were underway, the company began a

conversation with ONGC about sharing some of Reliance‘s unutilised infrastructure in D6 for

use in adjacent blocks. By the following July, the two firms had signed a memorandum of

understanding. A report in the Financial Express that month said, ―The state-run explorer‘s

move follows an internal study that said it could save $4–5 billion in capital expenditure if

the deal materialises.‖ The contract details are yet to be hashed out, but the deal may help

Reliance recover its capital investments, if ONGC agrees to pay rent on the infrastructure.

How much will ONGC pay? Vasudeva had a rather spluttering answer: ―This is first of all …

I mean the consultant is working out what all … whether this can be done or not, what all will

be required for that, and once this is done, it is decided, and this also needs to be decided,

whether it is short-term or long-term.‖ He added, ―So all that is—it is a work in progress.‖ At

this stage, he said, it is difficult to even put a price range on the agreement.

But should ONGC pay Reliance anything at all? If the ministry reimburses Reliance‘s

investment, then the infrastructure belongs to the government. If rent should be paid to

anyone, it‘s the exchequer. I asked the former ONGC director, who had worked extensively

on the Krishna Godavari Basin, if his ex-employer should pay anything to Reliance for using

the facilities. He said, ―not at all.‖

This May, there was another sign that people are waking up to the rot at ONGC. On the eve

of the announcement of the general election results, the corporation filed its petition, in the

Delhi High Court, accusing Reliance of pilfering gas from the oil fields neighbouring D6.

The main respondent is not Reliance, however, but the Union of India, the corporation‘s

largest shareholder. The suit also names the upstream regulator, the Directorate General of

Hydrocarbons. ONGC claims that neither the government nor the DGH have done enough to

stop Reliance‘s alleged theft, or to help the public sector company assess and recover its

losses.

It is rare for a company controlled by the state to take its owner to court. The Congressman

Veerappa ―Oily‖ Moily, who was then in his last days as the minister for oil and natural gas,

was livid. He wanted to launch a counter-inquiry into why the corporation had taken such a

step. But perhaps that was the point: in addition to protecting the interests of ONGC and its

minority shareholders, the suit could wrest some autonomy from the government. This could

signal, however weakly, that India‘s largest oil and gas company is slowly becoming willing

to shield its business from the whims of the government and the predations of private

companies—an important step if the public sector corporation is going to fulfil its

responsibilities to the nation.