ONGC Videsh acquisition of Siberian dud under scanner

The NDA government has initiated high level investigations into the scam tainted acquisition of UK based and listed Imperial Energy Corporation - an oil producing company with production and exploration operations in Tomsk region of Siberia, Russia – by ONGC in 2009 during the Congress rule at the Centre.

According to ONGC sources, the entire gamut of decisions related to “overvalued buyout” of Imperial Energy, which over the years had proved to be dud investment, has now been brought into sharp focus, with the petroleum ministry launching investigations into why and how the company was acquired without applying due diligence, scientific and technical criteria.

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HIGHLIGHTS:

• High-level investigations are on into the “gross impropriety” resorted to in the acquisition
• of UK-based and listed oil company Imperial Energy, and its aftermath
• Vigilance Investigation into another $500 million contract, after takeover, for operations in Imperial Energy oil blocks and reserves
• ONGC Videsh Ltd paid $2.1 billion while the actual value of Imperial Energy was only $500 million

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The investigation is not without political overtones. Imperial Energy acquisition happened during the Congress-led UPA regime which had till its’ exit in 2014, ruled over the ruins of its’ colossal blunder’ and preferred to remain in blissful ignorance about the company’s dwindling prospects and inevitable redundancy.

“Significantly, the government’s inclination to unearth the imprudence committed in acquiring Imperial Energy is also attributed to the fact that the final nod for going ahead with the “overpriced” buyout was given by the then petroleum minister, Murli Deora,” a highly placed ONGC official told The Hans India. Presently, according to the source, two investigations are on into the imperial energy deal.

In addition to a probe to delve into the “flawed” overvaluation in the buyout of Imperial Energy and its denouement as a fiasco, a vigilance enquiry has also been instituted into the award of contracts to the tune of $500 million for operations in the company’s oil blocks.

In 2009, the ONGC Videsh Limited (OVL) which is involved in overseas oil exploration and prospecting, had acquired Imperial Energy with the objective of reducing India’s heavy dependence on oil imports.

ONGC sources informed The Hans India that the prelude to the buyout of Imperial Energy in 2009 and its aftermath had shams and scams written all over it, with writing on the wall about the company fated to be a dud and the takeover doomed to be a disaster conspicuously evident to all those officials vested with the responsibility of ensuring due diligence, and the Cabinet Committee on Economic Affairs (CCEA).

There were innumerable pointers to substantiate the fact that the committees which endorsed the acquisition of Imperial Energy had resorted to gross impropriety and financial manipulations. The company was paid four-times its actual value by OVL, reflecting one among the many blatant violations of norms and procedures resorted to in the acquisition of the company.

The existing value of Imperial Energy at the time of the acquisition in 2009 was worth only Rs. 2339.85 ($500 million). But the company was bought out for a whopping Rs. 9827.37 crore (the rupee equivalent of $2.1 billion) by the OVL. And to justify the jacked-up valuation, officials came out with contrived and fabricated projections about the present and futuristic potential of the Imperial Energy oil blocks and its reserves.

While the crude output from Imperial Energy’s oil fields was around 4000 to 5000 barrels per day (BPD), the projections, according to OVL was 35,000 BPD to begin with, which would over the next few years could be increased to 45000 BPD. And, the exaggeration to validate OVL’s extravagance did not end with these ridiculous projections.

In what can be viewed as the ultimate farce played out by both by the due diligence committee and the CCEA, to buyout Imperial Energy at the overvalued price, through hook or crook – more ostensibly through the latter means as it emerged later - the OVL projected a futuristic output of the 80,000 BPD.

According to ONGC sources and experts, this output was impossible to achieve and there was neither any rational yardstick nor any logical parameters applied to arrive to such a projection. In fact, dubious intent in rushing through the acquisition became more evident when the committees preferred to ignore the objections raised by the then Director General (Hydrocarbons). Later, after the takeover, the CAG in its report also described the projections as "highly optimistic rather than realistic.”

ONGC has over the years been left high and dry with the buyout proving to be a huge drain on its coffers. Since the acquisition and till date OVL has been looking down a receding barrel, plumbing and scratching the depths to draw out even the minimum oil resources available in the Imperial Energy reserves with even the projected and committed 35,000 BPD – forget the 80,000 BPD – proving to be a fictional figure contrived to justify the deal. The output has on an average hovered between 10% and 25% of the projected 35000 BPD during the seven period 2009-2016. This year the output plummeted to abysmal depths at 1200 BPD.

Projections apart, one very pertinent component that was “overlooked” in the $2.1 billion valuation for the buyout was the oil extraction tax imposed by the Russian government. The valuation did not incorporate the taxes that should be paid to the Russian government, which later resulted in losses to OVL. The average global oil price was ranging between $100 and $115 per barrel and the company had to shell out $80 to $100 per barrel as taxes to the Russian government.

Was this due to lack of foresight or deliberate omission and “commission”? Either way, the big question making the rounds is how such a blunder was committed when three finance experts, RS Butola, the then Managing Director, OVL, RS Sharma, the then CMD, ONGC, and the then Director Finance who is now Chairman and Managing Director, ONGC , Dinesh K Sarraf, were among those instrumental in the acquisition of Imperial Energy.

These officials were either ignorant about basic calculations that go into acquisitions, or, despite being aware about the implications decided to go ahead with the deal. Though there had been audit enquiries into the deal those at the helm of affairs had managed to push their fallacies under the carpet and also play down the fast depleting potential of Imperial Energy.

Instead of being held accountable and punished the concerned officials have on the contrary been rewarded with promotions or continue to hold on to comfortable positions. RS Butola (now retired) was later promoted as chairman of the Indian Oil Corporation (IOC), and Dinesh Sarraf is the present CMD of ONGC.

Sanjeev Kakran, the then chief adviser, HR, Contracts and Legal, who is reported to have had a strong say and sway over awarding of contracts worth $500 million for Imperial Energy operations, was elevated as executive officer to ONGC Chairman, DK Sarraf. The vigilance wing of the petroleum ministry is probing Sanjeev Kakran’s role in awarding the contracts.

According to a ministry note, "Kakran had unlimited power at the company. Influenced the choice of personal (personnel), budget and controlled commissions through the tender system" Further, according to the note, "Information received from special check up operations prove Kakran's involvement in the scheme of commission-sharing obtained from contractors approved by the tenders committee.”