No takers for Cairn plea to appoint crude price expert

Vol 10, PW 24 (05 Apr 07) Midstream & Downstream

Bureaucrats in the oil ministry have turned down a plea by Cairn Energy to appoint an outside expert to determine the price of crude oil from its Rajasthan fields.

Cairn was hoping that impartial determination of an “independent priceâ€‌ by such an expert would break the deadlock with state-owned refiner MRPL who – in theory – is obliged to buy the crude and with IOC, to whom it is also talking. Cairn’s request for an outside expert was one of three made to the ministry.

One sought permission to shift the delivery point of crude oil to a point outside the field boundary; the second sought appointment of an outside expert to calculate an independent price; and the third sought permission to acquire RoU for the pipeline to transport the crude out of the fields. Appointment of an outside expert to determine the price, argues the ministry, is premature.

“There is no marketing freedom for Cairn,â€‌ says a source. “Pricing must be according to the formula in the PSC.

â€‌ Result: the Cairn application for an outside expert to determine the price of its crude was rejected! As for the first and second applications (to shift the crude delivery point and RoU permission) they too received a similarly cold response. “Who will lay the pipeline and who will bear the costsâ€‌ adds a source.

“Cairn has to make out a detailed case to justify both applications. Merely sending across a four-line letter saying they want something won’t do.

â€‌ Bureaucrats have told Cairn to go away and consult with ONGC, its partner at the Rajasthan discoveries, and MRPL, the government-nominated crude buyer, so it can prepare a detailed justification to back its requests. “The ministry wants to know how the decision on both applications will affect the government of India.