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Aiyar questions ONGC diversification

Aiyar expressed concern about India's increasing dependence on oil imports, which have risen to 76%.

india Updated: Nov 28, 2005 12:00 IST

Petroleum Minister Mani Shankar Aiyar has questioned exploration major Oil and Natural Gas Corporation (ONGC)'s diversification into power and petrochemicals, saying it should focus on the search for new oil and gas reserves.

The shift of ONGC's focus to other areas to earn higher profits has come at a time when India's dependence on oil imports is rising.

"Should we not be ensuring ONGC's dominance in exploration rather than see it emerge as a new kid on the block in power and petrochemicals?" Aiyar said.

He expressed concern about India's increasing dependence on oil imports, which have risen from 70 per cent last year to 76 per cent now, and said the time had come for "intermediation, discussion and resolution" of what is a serious issue.

ONGC, currently celebrating its golden jubilee, accounts for 80 per cent of oil and gas produced in India. The country produces 30-33 million tonnes of oil and about 65 million standard cubic metres of gas a day.

Aiyar blamed the previous National Democratic Alliance (NDA) government for letting ONGC diversify and shift focus from the key need to ensure better energy security.

Though ONGC is set to invest Rs100 billion more than what was targeted for during the 2002-07 plan period, a considerable investment is being used for diversification plans including power generation, pipelines and petrochemical projects.

"It (ONGC) is perfectly justified in seeing diversification as the way of offsetting the risks of exploration and strengthening the finances. But if they are not going to find the oil, then who will find oil in our country?" Aiyar asked.

"Unless we have proven reserves to draw on, it is difficult to imagine how we will have new output to draw on when the old output declines."

Despite the heavy burden of subsidies, royalties, taxes and dividend, ONGC is one of the largest revenue generators for the government, which holds 74 per cent stake in the company.

Aiyar credited ONGC Chairman Subir Raha with successfully stemming the decline in oil and gas production through restructuring and redevelopment of producing fields including Mumbai High, but questioned the shifting of focus from exploration.

The diversification received no clear mandate from an expert committee appointed by the petroleum ministry to study the advisability of restructuring oil companies for greater competence to face domestic and overseas challenges.

According to Aiyar, the philosophy of state-owned companies had originally been to "work towards objectives that had very little to do with the bottom line". But after disinvestments, as in the case of ONGC, the companies were asked to compete with the private sector and look at profitability too.

He admitted there was a serious conflict of interest in the case of ONGC, which is keen to earn more for its 26 percent non-government stakeholders. "Do you decide in the interest of your corporation...or stick to your point...in the larger interest of the nation? There is a serious conflict," Aiyer said.

Raha, on his part, has several times made a plea for more autonomy for state-owned companies.

Clearly no resolution seems to be in sight, with Aiyar contending that Raha seems to be avoiding having any serious dialogue with either him (Aiyar) or petroleum ministry officials.