Government Scraps Plan to Privatise Oilfields

The government has reportedly shelved the plan to privatise several key ageing fields of ONGC and Oil India Ltd. (OIL) following strong opposition from the state-run companies and consultations between the Oil Ministry and the Prime Minister’s Office. The two companies will now draw up their own proposals to boost output from the fields.

The Oil Ministry drew up a detailed plan last year to sell up to 60% participating interest in 11 ageing fields of ONGC and four of Oil India to private companies under the so-called Production Enhancement Contract (PEC) aimed at raising output. The plan also included another 44 older fields of ONGC and Oil India that could take on private technological partners under a process managed by the government.

Soon after the Directorate General of Hydrocarbons (DGH), the technical arm of the oil ministry, began circulating its draft policy paper on oilfield privatisation, ONGC launched a strong protest. In a strongly-worded letter to the government, ONGC had attacked the proposed policy as unfair to the company and favourable to private players that would have received fiscal concessions while operating these fields. A grouping of its executives sought the Prime Minister’s intervention in this policymaking process that, it said, lacked transparency and objectivity. This protest triggered a pause among policymakers and exchanges between the Oil Ministry and the PMO.

ONGC had already launched a plan independently for two of its ageing fields in Gujarat and Assam. It is seeking partnerships with oilfield service providers under a long-term contract in which private partners will get a pre-determined fee for every unit of oil and gas produced.

The government now wants ONGC to use these learnings to attract more private capital and capabilities to ageing fields.

The ONGC fields chosen for the proposed policy included some of the better performing ones and had already been receiving substantial investment for enhancing production. Having to give them up to private players could mean a loss of 15% in annual output and little return on investment made.