The Hindu Business Line : ONGC, Cairn told to end sales dispute

Major irritants
Cairn is seeking international price for the crude oil from Rajasthan.
ONGC has sought certain concessions including $4-5 per barrel discount.

New Delhi , Aug. 20

A consensus on sales agreement for Rajasthan crude oil between Mangalore Refinery Petrochemicals Ltd (MRPL) and Cairn Energy may emerge soon, with both the entities receiving a diktat from the Petroleum Ministry for an early resolution.

Official sources said the Government did not want to intervene in what was a `purely commercial negotiation' but it would like the players to end the stalemate.

The Ministry has asked MRPL and Edinburgh-based energy major to reach a decision within a stipulated timeframe on Cairn's Rajasthan crude oil. Sources in ONGC, the parent company of MRPL, told Business Line that negotiations are going on between MRPL and Cairn and the corporation was also keen on an early resolution of the issue that has been going on for almost two years. "Efforts are on at all fronts by both the companies," sources said.

Pricing

Indications are that Cairn has sought an international price for the 1,50,000 barrels per day Rajasthan crude expected from end of 2008. While ONGC, on behalf of its subsidiary MRPL, has sought certain concessions including a discount of $4-5 a barrel on Cairn's Rajasthan crude oil.

ONGC has been stating that the Rs 2,000 crore, which the company would be investing to build a pipeline for crude transportation, needs to be compensated through discounts, as without concessions it was uneconomical to transport the oil from Rajasthan to MRPL's refinery. "This is mainly because Cairn's crude would have high wax content and needs specialised pipelines to transport it from Barmer in Rajasthan to Mundra port in Gujarat for further shipment to Mangalore Refinery for processing," sources pointed out.

Product-sharing contract

Under the terms of the product-sharing contract (PSC), Cairn is obliged to sell the crude to the Indian Government till the country is self-sufficient and the Government had the right to appoint a nominee to take delivery of the oil. MRPL, in September 2005, was nominated by the Government to purchase the entire crude produced from the block, in accordance with the relevant provisions of the PSC.

ONGC has a 30 per cent stake in an oil and gas block in Rajasthan, where Cairn Energy holds the remaining stake and is the main operator.

Asked whether ONGC proposes to put on hold its plans to set up a 7.5 million tonnes per annum wellhead refinery in Barmer region till it works out a long-term crude supply agreement between MRPL and Cairn Energy, sources said, "the company is considering multiple options." ONGC has also asked the Rajasthan Government to take a quick decision on fiscal benefits, which could be extended to the company for making the project viable.

As per reports, ONGC has been maintaining that the issues concerning supply agreement need to be sorted out before the company takes forward its plans to put up a refinery. Besides, putting up a refinery in that region is not being considered viable as huge investments are involved, industry sources said. The availability of Rajasthan crude oil would be for a limited period, and import of crude oil for an inland refinery would prove to be cost prohibitive as it would not be competitive compared to coastal refineries, sources added.

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