Lloyds List: Raha helps ONGC to cut through the red tape

Lloyds List: Raha helps ONGC to cut through the red tape

Company chief has taken on ministers and won battles with bureaucrats, writes Shirish Nadkarni

May 19, 2006

ASTUTE, knowledgeable, charismatic, outspoken not attributes often levelled at members of India's suffocating and all-pervasive bureaucracy. But Subir Raha is no ordinary bureaucrat.

The chairman and managing director of India's public sector explorer-producer Oil ' Natural Gas Corporation is passionate enough about his work to not mince words, and let the consequences be damned.

He has taken on ministers and won and his periodic battles with the 'babus', as bureaucrats are derisively called in India, are the stuff of legend.

While his approach is likely to have won him a few enemies, his achievements at the helm of ONGC have so far saved him from reprisals.

After all, he has guided the company into the big league on the world stage as the highest ranked Indian conglomerate in the Fortune-500 list and created immense value for his shareholders.

That can be judged from the fact that the ONGC shares on the Bombay Stock Exchange have added an amazing Rs697.28bn ($15.7bn) to investor wealth in a single year between May last year and now, outperforming the 100-share sensitive index by a mile. The market capitalisation of the company is more than Rs2trn today

If anything the present Petroleum minister, Murli Deora, appears inclined to give the ONGC thoroughbred the power to take his radical changes further. In a move that could equip the corporation's overseas arm ONGC Videsh, or OVL, with an impressively sharp set of teeth, Mr Deora has proposed enhancing its powers to clear investments up to $500m without having to check with the mandarins in New Delhi.

If the idea gets the green light it will massively enhance the powers of the OVL board, which now can only clear investments up to Rs3bn ($67m). Any proposals that call for more funds need ministry approval, which can take anything from two weeks to two months.

This has often hampered OVL's ability to offer competitive prices in the race for securing equity in quality oil and gas blocks abroad.

'The existing powers of OVL are insufficient to acquire even a small-sized property abroad,' Mr Raha says. 'With oil prices at an all-time high, the value of oil and gas properties has increased substantially.

'OVL needs to align its strategy with that of the international market and offer competitive prices while pursuing good oil and gas properties.'

OVL is the vehicle that Mr Raha is using to flex his group's muscles abroad while at home its parent ONGC bids for oil and gas blocks sold under the New Exploration Licensing Policy.

ONGC secured several top properties in the first five rounds of bidding under the policy and has plans to bid aggressively for new offerings in September this year.

The state-run explorer is now seen as a powerful adversary in India by the multinationals. Shell, Exxon and BP have all sought a ban on bidding by ONGC and the private sector Reliance Industries for fresh oil and gas blocks put on tender under NELP-VI.

In the course of the one-on-one meetings that the global energy majors had with Indian politicians and bureaucrats during road shows in London and Houston in March they said that, since ONGC and Reliance already had far too many Indian exploration blocks with them, they must be kept out of the new round.

Most of the global oil giants had stayed away from the previous five auctions due to aggressive bidding by the domestic majors. However, NELP-VI has evoked considerable interest in the wake of large gas strikes by both Reliance and the ONGC-Cairn Energy combine in the Bay of Bengal and by Cairn Energy in Rajasthan state.

The multinationals said that a 'holiday' from bidding for fresh exploration blocks would ensure that ONGC and Reliance concentrated on drilling their existing blocks rather than sought time extensions due to paucity of equipment and manpower.

Ironically, sleeping with the enemy is not considered reprehensible. All these energy multinationals also see ONGC as a most desirable partner.

The first road show organised by the state-run corporation on March 25 this year saw as many as 26 international and Indian vendors confirming their interest in partnering ONGC in either the Rs40bn Assam Renewal project or in NELP-VI bidding.

International competitive bidding for the Assam project is scheduled to be launched this month for the single lumpsum turnkey engineering procurement and construction contract, valued at Rs25bn for equipment to be provided at 41 installations integrated into 13 complexes and Rs5bn for 1,250 km of pipelines with 903 segments.

The objective is to increase production from Assam from the present 1.4m tonnes to more than 3m tonnes within four years.

Of the 26 companies which showed interest, eight were foreign and included such names as Sinopec of China, Kellogg Brown ' Root of Singapore, Proteus and Leighton, both of Australia, Penang, Muhibaah and Sapura, all of Malaysia, and Specialist Services of Dubai. Most of the top Indian vendors were also present.

Having had an eminently satisfying year on the financial front, thanks to the dizzying spiral of oil prices, ONGC wants to use its cash-rich status to become an all-round global energy outfit.

Forward integration into refining and retailing is now the ideal way forward for ONGC, says Mr Raha. Plans to spend a massive Rs750bn over the next four to five years in putting up refining facilities in India are already being put into action.

Even as it has made a firm offer to another public sector refiner, Hindustan Petroleum, to buy out the latter's 17% equity stake in its own subsidiary, Mangalore Refinery and Petrochemicals, at an anticipated outgoing of Rs15bn, it is working towards increasing its refining capacity from 13m tonnes a year at the moment to 45.5m tonnes by 2009-10.

The astute Mr Raha plans to execute all new greenfield refining projects by forming new companies which will eventually be listed.

Joint ventures, even between two government-owned companies, do not come under the preserve of New Delhi's stifling bureaucracy, and decision-making will be quick and firm.

'Our refining plans include a 15m-tonnes-a-year integrated export-oriented refinery-cum-petrochemicals project, to be set up in the special economic zone at Mangalore, within a stone's throw of MRPL, at a total cost of Rs300bn,' says Mr Raha.

'We have initiated talks with ExxonMobil for a possible equity tie-up in the new refinery in return for guaranteed crude oil supplies.

'Such a partner would also collaborate with us in exploration and production ventures worldwide and in jointly vying for oil and gas blocks in the forthcoming NELP-VI.'

In addition, ONGC will execute two greenfield refineries of 7.5m tonnes a year each at Barmer in Rajasthan and Kakinada in Andhra Pradesh, costing Rs100bn and Rs90bn respectively.

Another Rs80bn would be spent in scaling up the capacity of MRPL from 12.69m to 15m tonnes a year. In addition, Rs120bn is to go towards an olefins complex and Rs40bn towards an aromatic complex, both in Mangalore.

Mr Raha's acumen and foresight can also be seen from his company's projected tie-up with national carrier Shipping Corporation of India for setting up a joint venture company called Offshore Marine Services.

It is another outfit that will be outside the bureaucratic net and such is the international interest in ONGC's activities that PSA of Singapore has expressed interest in taking an equity stake.

'The joint venture company will provide end-to-end solutions for vessel operations for ONGC and other oil and gas companies,' says Mr Raha.

'It will also develop capabilities for acquisition, repair and maintenance of offshore floating units and undertake their repair and construction on long-term arrangement with shipyard facilities on preferential terms and competitive basis.'

Under the agreement ONGC will offer its vessels on bareboat charter-cum-demise agreement to the joint venture company and retain right of first refusal on deployment of these vessels according to requirement.

In addition, Offshore Marine will acquire, own, maintain, operate and charter a wide range of offshore vessels and remain free to secure non-ONGC business, including acquiring vessels and other assets.

ONGC will also have the option to acquire new vessels and put them into the joint venture company on similar agreement. No doubt Offshore Marine is indicative of the kind of subsidiary that the parent will set up in future in more of the fields in which it operates.

At the same time, Mr Raha is trying desperately to delegate and reduce his huge personal workload that involves presiding over all domestic and overseas exploration and production projects. ONGC is therefore rejigging its operations by urging the petroleum ministry to appoint two vice-chairmen to manage its domestic and overseas businesses, with each leading a team of presidents and directors responsible for finance, exploration and human resources.

The move would be in line with India's plans to develop at least three integrated oil majors, each involved in both upstream and downstream operations.

Pre-eminent among them would be ONGC if it were successful in its stated bid to become a $100bn company with a presence across the entire hydrocarbon value chain.