Why did ONGC Keep Quiet about Gas Migration for Eight Years?

ONGC may have to share a significant part of about $11 billion spent by Reliance Industries in developing Krishna-Godavari basin gas fields before the public sector can claim its share in the KG-D6 gas that shifted from its blocks to adjacent block operated by Reliance, government sources said.

A recent report of American consultant DeGolyer & Mac-Naughton (D&M) has confirmed that some natural gas has migrated from ONGC’s two blocks to adjacent producing gas fields of Reliance, which is estimated around $1.7 billion.

The migration is mainly because the underground reservoirs seem connected and ONGC has delayed production from its blocks, sources in the Directorate General of Hydrocarbons (DGH) said. DGH is technical adviser of the oil ministry and custodian of India’s oil and gas resources.

“Government may ask investigative agencies to conduct an inquiry to ascertain whether this delay was deliberate? It is intriguing that ONGC kept quiet on this matter till July 2013 while the G4 block is with it since 1997 and it got control over the 98/2 block since 2005,”a government source said requesting anonymity.

It is not a unique situation as the matter will be settled through a gas balancing agreement, which is an internationally accepted practice. In India such agreements do exist in Hazira and OLPAD gas fields in Gujarat where underground gas reservoirs turned out to be common, DGH and oil ministry sources said. Email queries sent to ONGC and Reliance did not elicit any response.

DGH sources blamed ONGC for inordinate delay. ONGC has been ignorant and has now chosen to assert to hide its failure of raising its claim after several years, which otherwise implies that it allowed the situation to happen for the reasons best known to the company, DGH sources said.

The Godavari block (G4) was awarded to ONGC without competitive bid in 1997 where it had discovered at least three discoveries. It bought 90% of the other block (98/2) from Cairn in 2005 and remaining 10% in 2012, where it announced eight discoveries. While Reliance got its KG-D6 block in 2000 and started gas production in April 2009.

DGH sources said that perhaps ONGC never intended to produce gas from its block because of immense technical difficulties and wanted easy returns by claiming a share in the gas produced by Reliance.

(Also published in Amar Ujala http://epaper.amarujala.com/dl/20151228/11.html?format=pdf)

Interview: Arvind Panagariya, Vice Chairman, NITI Aayog

Economist Arvind Panagariya was enjoying teaching Indian political economy at Columbia University until Prime Minister Narendra Modi assigned him the task head Niti Aayog as its first vice-chairman. But, he has no regrets. While enjoying the comfortable life abroad, he was always pained by three things that ailed the Indian economy; policy paralysis, problems in land acquisition and rising non-performing assets (NPAs) of banks. Now, he has got an opportunity to help India in removing these impediments. He is certain that Indian economy would bounce back to the phase-IV (1988-2006), i.e., ‘triumph of liberalisation’ as mentioned in his book ‘India: The Emerging Giant’, which is described as the “definitive book on the Indian economy”. In an exclusive interview with Rajeev Jayaswal of Amar Ujala, Panagariya talks about the medicine to revitalize the Indian economy, particularly agriculture. Excerpts:

Q: Your book, ‘India: The Emerging Giant’, distinguishes the country’s economic development into four phases. You described the fourth phase as ‘triumph of liberalisation’. If you have to write a sequel of your book, what would be the next phase? There is a general perception that the policy paralysis gripped the entire economy in the past 10 years.

Ans: It may not be called a sequel. You may call it revision. Yes, I may revise the book. Seeds of the next phase was sown in 2009 when projects could not take off because of regulatory reasons. It was policy induced decline.

Q; Don’t you think that the decline, which started during the previous UPA regime, still continues?

Ans: A lot has changed since 2013-14. Growth rate is back between 7 and 8%. Inflation is down. Current account deficit is back to 1-2%. Foreign exchange has risen. Pace is slow because of several reasons, mainly due to global conditions. Decline in exports is seen in last few months, which is largely induced by (crude) oil prices. As a result exports to oil rich countries declined.

Q: What is the medicine? The government wants that the policy reforms should target ‘dalits, shoshits and vanchits’ (the poorest of the poor), who are farmers. So, no policy reform would give desired results unless agricultural reforms take place.

Ans: We have set up a task force for agricultural reforms. We are holding discussions with various stakeholders. There is no one solution. Policies should be framed keeping regional variations in mind. For example, the western India is well irrigated, hence it is less dependent on monsoon. On the other hand, the eastern part is rainfed.
So there is no single medicine. In the western region, there is a need to reduce dependence on rice, because the water-table has fast depleted. For east, we need to have irrigation system. Take usage of fertilizers. There is an overdose of urea, which is deteriorating soil condition. But, in the east, urea is underused. There is no universal ratio of fertilizer. The ratio depends on the soil quality, the crop and the climate. Our policies must take all these factors into account. Use of digital technology would be of immense help. Soil card is also good instrument. Gujarat is doing well in this regard.
Also, a separate sub-group is set up to look into issues of the hilly region such as Uttrakhand as Himachal Pradesh, because their issues are different. A group under Mr. T. Haq is specifically looking into these matters.

Q: Will the Task Force on Agriculture reflect on these issues? Do you think that state government have enough will power to make region-specific policy changes, suggested by the task force?

Ans: Most states would do. Votes are there (rural areas) and no chief minister can ignore it. The taskforce is discussing issues with states. Major issues are land leasing legislations and digitalization of land records. We had different land tenure systems in different states, some had ‘zamindari’ some had ‘raiatwari’. We need to systematize it and have proper land records, which will help in land leasing.
Land leasing laws are restrictive. People fear to lease their land because existing laws are tilted towards tenants. The farmer is the ultimate loser due to that. Often the owner of land is not the cultivator. But, on land records, the owner is registered as the cultivator. Thus, in case of hailstorm, flood or draught; the recipient of compensation is the owner and not the actual farmer. Therefore, land leasing laws should be changed. These measures will also help in direct transfer of fertilizer subsidy.

Q: But, land leasing laws and digitalization of land records require political will of states. Specially, the term ‘leasing’ in the Indian agriculture sector is not politically conducive. How will you convince them?

Ans: Most of the state chief ministers are progressive. They all are in favour of reforms in agricultural sector. It is their political necessity. Somebody suggested that the term leasing could be substituted with licensing.
Q 6: Is it similar to contract farming, which your predecessor in the previous UPA regime wanted to pursue?
Ans: This is a separate issue. It is to give remunerative price to the farmer. Today, farmers get only a small portion of market price of his produce. It should be seen in the context of APMC (agricultural produce market committee). Contract farming is one of the ways to give remunerative price to farmers. As an economist, I see it as one of the entitlements, which should be used. Better ties with food processing industry will not only remove interference of middlemen but also ensure better prices to farmers for their produce. The Vajpayee government had initiated several measures to ensure remunerative prices to farmers and those policy measures should be revived. APMC reforms are required. Bihar has removed it, but something should have replaced it. Several existing policies are beneficial for consumers and not farmers.

Q: India’s agricultural sector is in bad shape? What is the one single factor that could revitalize agriculture?

Ans: Ultimately, solution lies in industralisation. There should be an industrial policy that would create jobs. This will reduce pressure on land. Currently, farmers are cultivating in half-an-acre or an acre of land. This problem will ease with creation of industrial jobs.

Q: Industries would require land. But, political opposition to land acquisition is one of the major impediments. What is the solution?

Ans: Could you guess, what is the total land for non-agricultural use, including houses, offices and industries? It was just 8% of total land in 2012. Fifteen years ago it was 7%. In these 15 years, we used only 1% land and grown multiple times of what we had done in previous 50 years.

Q: Were political parties not consulted before bringing the land acquisition legislation in the parliament?

Ans: In the middle of June 2014, all CMs (chief ministers) were consulted and all of them wanted changes in land acquisition. Hence, the ordinance. Naturally, it (government) was obliged to bring the law. For them (the opposition parties), it is easy to forget the history and blame … it is in the concurrent list and Tamil Nadu, a non-BJP state made changes.

Q: Current state of the economic growth is not perceived to be robust. Why?

Ans: It is wrong to say that. Yes, expectations were high. But there are achievements. Inflation is down by 3-4%. Positions of current account deficit and foreign exchange reserve are better. Growth is between 7 and 8 percent. And you must agree that this government has been able to check corruption. Now, PSU banks do not have any pressure on granting loans (to any particular entity). The government has stopped making anti-growth policies. However, ease of doing business is yet to show its impact, but it will catch up. Labour reforms have taken place, Inspector Raj has ended …

Q: But, Inflation is down due to global slump in crude oil prices. The government has no role in that?

Ans: Fiscal deficit is reduced not only because of decline in oil prices but also because expenditures have been reduced substantially.

Q: We are back to the same question, how to boost the economy?

Ans: Job creation is the solution. As an economist, I believe that if the large enterprises are not successful, SSIs (small scale industries) and SMEs (small and medium enterprises) would not grow. Ancillary units grow around big industries. It is sad that we don’t have economies of scale. In textile, even Bangladesh has surpassed us. We have about $17 billion (textile industry), Bangaladesh, $20 billion and China is far ahead at around $180 billion. We need large funds in labour intensive industries. Besides, you need good eco system, which is infrastructure, land, labour etc. Even solution to the rural poverty depends on the success of job creation.

(Published in Amar Ujala, Mon, Dec 14, 2015, http://epaper.amarujala.com/dl/)