Accepting Cairn’s proposal is a win-win for everyone
Though it is not clear whether the government will agree to the proposal that Vedanta Resources executive chairman Anil Agarwal put to petroleum minister Veerappa Moily a few weeks ago, it offers a win-win for all concerned. Given Agarwal’s Cairn India produces a fourth of India’s oil and accounts for three-fourths of the ‘profit petroleum’ the government gets, it makes eminent sense to give back the 8,600 sq km of area the company has relinquished over the years—the company knows the area well and is confident of finding oil in even the areas it has relinquished since large parts of them could have similar geology to the ones it currently operates in. Cairn has pointed out that more oil will help feed HPCL’s R37,000 crore Rajasthan refinery for a longer period of time, and has also argued that the government’s share of oil will never be higher than it is now. Since Cairn is a pre-NELP block, a cess of R2,850 is paid to the government for every tonne of oil produced—till 2030, the estimated cess contribution is estimated at R36,000 crore—and on top of this, ONGC has a mandatory 30% equity in the operating company. None of this, Cairn has argued, is mandatory in the NELP rounds and so, were the surrendered areas to be put out on auction in NELP rounds, the government may never get the same amounts of revenues it gets today.
This may or may not be correct since, given the success Cairn has had in Rajasthan—and the data is out there in the public domain—it is always possible a new bidder may give the government a higher share in a seemingly oil-rich block. How much is not certain since over 80% of Cairn’s revenues today anyway accrue to the central and Rajasthan governments and ONGC. The larger issue, and this applies to the area relinquished by firms such as Reliance or even ONGC, is that the oil ministry is very slow to put them out in new rounds of NELP. It may not be important whether Cairn or some other firm explores for fresh oil in the 8,600 sq km it has given up, but it is worth keeping in mind that since 2005, when Cairn gave up the last bit of acreage, none has been put out in the NELP rounds. Not getting every square inch of area explored is a criminal waste in an oil-starved economy.