BG-ONGC tie-up for KG basin may get nod

BG-ONGC tie-up for KG basin may get nod

BRITISH Gas’ strategic tie-up with ONGC for the Krishna-Godavari deepwater blocks may get a new lease of life. British Gas had won the blocks through a bidding process, but the oil ministry had rejected the award on grounds of ‘valuation and other inconsistencies’. The ministry is now examining the option of giving British Gas a chance to match the highest offer for the KG deepwater blocks when they are again put up for bidding under Nelp-VH.

The case has been of special interest following diplomatic pressure at the highest level and a recent letter from Investment Commission chairman Ratan Tata, pointing out that reneging on such contracts would shake global investor confidence. The PMO had earlier flagged the issue with the petroleum ministry following a representation from UK Prime Minister Tony Blair’s office. Sources said the finance ministry is also in favour of reviewing oil ministry’s rejection of the original award to BG-ONGC.

The petroleum ministry’s move could come as a compromise as it had decided to put up the same blocks for a rebid. In ‘ the first instance, British Gas was the only company to have put in a final bid after ONGC short listed three bidders.

Now British Gas may be given a chance to retain the blocks if it matched the highest bid in case of a rebidding. Experts have argued that the bid given by BG was far lower than the bids for blocks in the region. The bid for an exploration block has a direct bearing on the profit share that the government gets. BG had countered this argument by saying the price offered is higher in the case of a 100% owned block. The price offered is somewhat lower in a joint venture framework.

ONGC, which had got these blocks on a nomination basis had put up these blocks for bidding under NELP-V. Although almost 16 companies had shown interest in the initial stages, British Gas happened to be the only bidder for the block. ONGC had then signed a deal with BG on the strategic partnership in mid-2006. However, the petroleum ministry had held that ONGC had not got the right value on the blocks. Comparison of these blocks with other blocks may not be quite right as the blocks had several other requirements like a signature bonus, sources said.

Regarding the competitiveness of BG’s proposal, Mr Tata had written ONGC was independent commercial entity, and it had issued a letter of acceptance in November 2005 to BG.

ONGC had also already written to the ministry in August 2006, explaining that the BG offer did not compromise the quality of the bid and that the bid was superior to other comparative bids in NELP-V in terms of the government’s share of profit petroleum.

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