Tough Shastri Bhawan move is lesson to all

Vol 7, PW 5 (21 May 03) Exploration & Production

WITHOUT A doubt Shastri Bhawan's crackdown on Petrocon has sent out the intended message: don't take the government for granted; it has the will and determination to enforce the terms of PSCs against wilful defaulters.

"They had to be shown that the government meant business," says a source. "Investor friendliness does not mean that you can get away with anything.

There is a limit." Faced with such determination, and pressure from its Ravva partners to see reason, Petrocon finally acted sensibly. Evidently, its strong political connections did not help: one of the Dhoot family members is a ruling party MP.

This dispute is just one of many between Petrocon and Shastri Bhawan over Ravva and which are now in arbitration. But Dhoot's 6th May letter to Shastri Bhawan promising to pay $6m as profit petroleum, "without prejudice" to the positions being taken before the arbitrators, is a welcome sign of new flexibility.

Continues Dhoot: "Certain payments have to be also made by Petrocon each month to the operator (Cairn) for payments made on Petrocon's behalf on account of statutory levies like cess and royalty as well as towards operating and other expenses under the PSC." Dhoot wants to be paid the amount remaining with Hindustan Petroleum and GAIL after deducting $6m every month, "so that production operations can continue from the field." What if the money falls short of $6m "If the amount due to Petrocon from the government nominee is less than $6m, Petrocon undertakes to make good the shortfall by direct payment for the balance amount to the government." Says our source: "This issue was entirely of their (Petrocon's) making. They had a dispute with the government but the least they could have done was to continue paying what they felt was the right amount and leave the arbitrators to decide the final amount."