BG asks ministry for more time on PMT audit demand

Vol 12, PW 24 (07 May 09) Exploration & Production

Rarely has the oil ministry come down so heavily against a foreign oil company in India.

But it has in the case of British Gas, principal operator of the Panna, Mukta and Tapti (PMT) fields offshore Mumbai, with partners Reliance and ONGC. In dispute is a controversial oil ministry demand for the re-audit of PMT books since December 1994, when the original PSC was signed with disgraced operator Enron.

On April 29, BG sent a letter to the oil ministry seeking more time to make up its mind over this controversial demand. BG’s letter came just two days before the May 1 deadline set by the oil ministry for an answer.

Before sending this letter, BG, ONGC and Reliance had earlier agreed to give in to the oil ministry demand. But there was a change of heart after BG persuaded Reliance and ONGC to seek more time from the government.

But a source tells us BG will eventually have to back down, even though the PSC does not allow audits backdated beyond two years. “We are an Indian entity,â€‌ says a consortium source.

“If the government of India wants to exercise its sovereign rights, it can - no matter what the PSC says. We have no choice in the matter.

â€‌ Our source adds that a sense of â€کrealpolitik’ will eventually dawn on BG and draws parallels with Enron’s experience in India. “It is futile to pick a fight with any government and hope to win,â€‌ he adds.

“We do business with the government on a daily basis.â€‌ BG and partners remember Enron’s stark experience when the US trader was powerless to force the Indian government to honour its Sovereign Guarantee after the Maharashtra State Electricity Board stopped paying for electricity from Dabhol.

“Enron had counter guarantees but it could not enforce them,â€‌ we hear. “Similarly the PSC for the PMT fields puts a limit of two years for an audit but it means nothing if the government decides it does not want to honour the two-year limit.

â€‌ Consortium partners prefer to take a long-term view. “We have several outstanding issues pending with the oil ministry,â€‌ adds a source.

“It’s more important to get cost recovery for our wells than bicker about an audit.â€‌