Companies

Can’t bet country’s economy on oil optimism: Cairn CEO

Richa Mishra Debabrata Das New Delhi | Updated on January 22, 2018 Published on September 14, 2015

14/06/2015 MUMBAI: (left) Tom Albanese, CEO, Vedanta Ltd along with Mayank Ashar, CEO, Cairn India at a press conference to announce the merger between Vedanta Ltd and Carin India in Mumbai on June 14, 2015. Photo: Paul Noronha   -  BUSINESS LINE

It is dangerous to believe that oil prices will remain low, says Mayank Ashar





“You have to be a quasi-optimist to do business in India,” says Mayank Ashar, Managing Director and CEO, Cairn India. From Canadian oil sand operations to Barmer’s waxy crude, Ashar knows all about crude. But handling political powers is a different ball-game. Acknowledging that the frequency of interaction with government officials here is “a lot more than I am used to”, he says, “politics is not easy”.

With Cairn India getting the nod for raising gas production, the chances of the government ‘favourably’ considering its request for extending the Rajasthan production sharing contract till the life of the field have brightened. But the moot point is, are the company and the government on the same page.

Ashar shared with BusinessLine his views on the issues explorers face, whether the DNA of Cairn will undergo a change if the merger with Vedanta Ltd becomes a reality, and whether the government’s optimism on low crude oil prices is justified. Excerpts:

The government’s recent economic growth projections are based on low crude oil prices and optimism that they will stay low. Do you also share the same optimism?

When it comes to foreign policy, there are many ways to look at it. There are the doves, there are the hawks, and then there are the realists. None of them is right or wrong. When we were at $147 a barrel, we thought it would go to $200. In January 1999, it was $9 and The Economist said that it will go down to $5. But, the reality is very simple — It follows the dove.

Oil and gas fields always decline and therefore, heavy investment is required. So, Iran, China or whatever you want to think about, the reality is that prices follow a cycle. It is dangerous to believe that the low oil prices will remain… It is all governed by investment cycles.

Extrapolation of current oil prices with some optimism is not something that you can bet a country on. You can bet your home on this, you can bet your business on this, but not your country. What you need is a resilient nation that is able to withstand shocks.

With the marginal field policy the government has indicated a different contract mechanism — revenue sharing model. Do you think it will work for the NELP blocks also?

In principle, revenue sharing is not a bad thing because cost sharing requires a lot of verification and complexity. But I would be careful to say whether a model itself is the answer… you can have a good PSC or a bad revenue sharing model… all depends on how it is structured, how it translates into returns for businesses. The devil lies in the detail.

Talking about disputes, Cairn had given up its right to arbitration. If a dispute arises today, how do you deal with it?

The best thing to do is to keep discussing. We use multiple mediums for dialogue… meet with the government. At some point, if you can’t resolve it then every organisation is stuck with the question: what do we do? But dialogue, working together are always preferable.

One thing is clear that disputes are not healthy. Like the tax dispute, it is not just about Cairn Energy, Cairn India, and the tax department. It is much more than that because these things get read by current and future potential investors.

Cairn promoters are facing flak on the proposed merger with Vedanta Ltd. How to you explain the merger to your team who identify with Cairn brand?

The brand is more than a name, as Shakespeare said…Transition in business is normal. What was discussed during the merger announcement was that the Cairn brand will continue.

If the minority shareholders vote for the merger, then there will be a Vedanta brand as well. But the Cairn brand is not going to be wiped out. Cairn, as an independent entity with its own board, could change if the minority shareholders accept the merger.

Vedanta is on record that Cairn will continue to have the brand and identity because you know oil and gas sector is different. It can be synergistic but you don’t run the oil business as you run a mine nor will you run a mine like you run the oil business.

Rajasthan oil production has hit a new landmark — 300 million barrels. Are you getting the price you wanted?

I think we could get a better price. This is not a zero sum game. If we get a better price, for every $1 increase, the government gets 70 per cent of that through ONGC as well as directly. At a very fundamental level, whether you are producing agriculture or any goods, you want to make sure you are getting a good and a fair price.

We have had expressions of interests, lots of data that show this crude could get a better price than what we are getting right now.

Cess on Rajasthan crude is another bone of contention between you and the government. Is the government willing to soften its stand?

I think I can tie cess to investment. You can tax a lot, but beware of the unintended consequences. We have plotted cess and Brent together. The cess has gone up something like 10x even though Brent has had its ups and downs. When Brent goes down, you don’t cut the cess rate. At $100, cess was nine per cent a barrel, but with Brent now at $50, the cess is 18 per cent. There needs to be some element of fundamental fairness. If you raise taxes unilaterally at one point of time, you should have the courage to fix it when it is needed.

With all the regulatory approvals in place for enhanced gas production, does it mean that the Rajasthan PSC can be extended till life of the field?

Here we have a contract that is pre-NELP, which is very clear and unique. It says that if you find commercial gas then the contract will be extended by 10 years under the same terms and conditions (the present contract expires in 2020). We have written to the Government and we are waiting for closure on that.

Published on September 14, 2015
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