The Hindu Business Line : ONGC extends comfort letter to Mittal venture

Counter guarantee
OMESL is a 51:49 joint venture formed between ONGC and Mittal Group to undertake trading and shipping of oil and gas
ONGC came in for criticism after reports that the company had not given a counter guarantee for the purposes of registration

New Delhi , Oct. 16

Oil and Natural Gas Corporation has extended a `comfort letter' to ONGC Mittal Energy Services Ltd (OMESL), confirming its commitment to the memorandum of understanding inked between the two entities in July last year.

ONGC had recently come in for criticism for lack of interest shown on its part, which was affecting the future of the joint venture with Mittal Group.

Joint venture

The 51:49 joint venture OMESL was formed as per an understanding between ONGC and the Mittal Group company to undertake trading and shipping of oil and gas. The controversy erupted following reports that OMESL had communicated to the Petroleum Ministry over delays in getting the joint venture registered with refiners for evacuation of crude oil and other petroleum products. Such registration requires counter-guarantee on the part of ONGC.

"This letter of comfort would basically provide ONGC's support to the business. It would enable OMESL to look for opportunities in trading business from the oil companies," sources told Business Line.

Initially, OMESL was to quote only for naphtha/fuel oil export tenders of ONGC and crude import and petroleum product export tenders of Mangalore Refinery and Petrochemicals Ltd — a subsidiary of ONGC. Subsequently, it was to register with other refiners such as Indian Oil Corp, Bharat Petroleum and Hindustan Petroleum.

OMESL was also to be used as vehicle for trading of oil and gas produced by ONGC Mittal Energy Ltd — the other joint venture company between ONGC and Mittal Steel for buying properties abroad.

IOC's communique

Meanwhile, Indian Oil Corporation has communicated to the Ministry that it cannot have OMESL on its mailing list for participation in its tenders for import of crude or gas and export of petroleum products as the joint venture did not have the requisite three-year experience. To be eligible for participation in public sector oil company tenders, a firm needs to have at least three years of international trading business experience. Asked whether the letter of comfort given by ONGC would help OMESL in getting it registered with the refiners, sources in refinery companies said, "it is unlikely to be of any help unless the joint venture meets the required norms."

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