The Hindu Business Line : CCEA strikes down ONGC plan to invest in Nigeria

THE Government has shot down a proposal of ONGC Videsh Ltd (OVL) to pick up stake in a Nigerian oil and gas field, while at the same time permitting downstream public sector oil companies to partner Oil India Ltd (OIL) in scouting for oil and gas assets abroad.

The decisions came at the meeting of the Cabinet Committee on Economic Affairs (CCEA) late on Thursday when it approved OIL's proposal to form project-specific special purpose vehicles (SPVs) with other oil companies while bidding for overseas oil and gas assets.

At the same meeting, OVL's Nigerian project was nixed while the company received the nod to invest $820 million in a Brazilian project.

`Risk element'

According to sources, the CCEA decided against giving permission to OVL to buy South Atlantic Petroleum's 45 per cent stake in the Akpo oil and gas field in Nigeria on the grounds of "risk element" though there was no elaboration on the possible risk factors.

The Union Finance Minister, Mr P. Chidambaram, who briefed newspersons on the CCEA decisions, also refused to give reasons for the refusal.

"These are commercial transactions. I cannot tell you why this was not approved."

What OVL stands to lose

The former Nigerian Defence Minister, Mr Theophilus Danjuma, owns South Atlantic Petroleum and the deal was expected to be close to $2 billion.

This would have been one of the major deals for OVL, as in other overseas projects it has either 20-25 per cent stake or complete operatorship.

The Akpo fields' estimated reserve is around 1.6 billion barrels of oil and the operators of the field are French firm Total SA. OVL was to partner with Total and Shell in the project.

OVL has been in negotiations with South Atlantic Petroleum as the latter is selling its stake in the field, which would begin production in 2008.

The field is expected to produce 2,25,000 barrels a day, equal to nine per cent of Nigeria's current production.

On the Brazil project, the Finance Minister said that the CCEA had given its nod to authorise OVL to invest, in the event of its being the successful bidder, up to $820 million in Project Sugarloaf, including payment of purchase consideration of $330 million for acquiring the full equity of Exxon's Brazilian subsidiary, and a further amount of up to $490 million as cash calls for the period beyond July 1, 2005 as OVL's share of project cost.

The CCEA authorised ONGC to provide funding support to OVL for the project.

Why OIL got the nod: About OIL's proposal to form SPVs with Indian Oil Corporation or any other major public sector oil company to bid for exploration and production contracts, Mr Chidambaram said: "Since the search for oil is taking us to many parts of the world, it has been decided to allow OIL, which is also into exploration, to form joint ventures with other oil majors in India and bid for such contracts."

He added: "We will now have two major bidders - OVL and the SPVs floated by OIL together with other oil companies. At the moment, OIL wants to form SPVs with IOC, which is project-specific."

Any SPV floated by the PSUs with OIL would be purely need-based, he added.

More Stories on : Policy | Overseas Investments | Petroleum

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