Did ONGC foreign investment arm knowingly throw away 5,000 cores? If yes, who were the beneficiaries? ABC Tries to find out the real truth behind this oil acquisitions.
New Delhi (ABC Live):In January of 2009, amidst much fanfare and kudos ONGC’s foreign investment subsidiary ONGC Videsh Ltd, OVL made a USD 2.12 billion (Rs 10,320 crore) acquisition of a UK company with oil exploration fields in Russia.
A yearlong investigation by ABC shows that at least some officials of OVL might have been willing accessory to massive fraud to Indian exchequer.
It is now emerging that not only did OVL pay a highly inflated price for the acquisition – nearly two times more that the proven production and reserves – large amounts of foreign exchange might have been diverted to offshore tax havens.
The 2009 acquisition was made with estimated reserves of 35,000 BPD (Barrels per day) of crude oil production from oil fields in Tomsk region of Siberia, owned by a UK registered company Imperial energy. Despite requests and RTI applications, OVL refuses to show how it reached the company valuation because for two years after acquisition OVL was struggling to achieve 16,000 BPD production.
The government auditor CAG has rapped ONGC Videsh Ltd for its buyout of Imperial Energy Corp saying “reserves were inflated” and “unrealistic projections of output made” to justify the Indian energy giant's most expensive acquisition ever.
The true story of OVL acquisition smacks of murkier deals.
The Cabinet Committee on Economic Affairs (CCEA) had in August 2008 allowed OVL and its managing Director RS Butola to acquire Imperial subject to stipulation that the rate of return on investment be more than 10 per cent. Instead OVL had lost nearly half of USD 2,2 Billion by the end of 2010. The projections by OVL showed a production of 80,000 bpd by 2011. True production levels in 2001 were four times less.
Documents reviewed by ABC Live show that 2008 production levels were in fact only 5,634 bpd for the company that OVL paid USD 2,2 billion for on assumption that production will jump to 80,000 bpd. Just how OVL aimed to achieve a 16 times jump in production is a closely guarded secret. CAG report says that OVL incurred a loss of over 1200 Crores. ABC Live and its sources project that nearly 55 percent of USD 2,2 billion ( 10,320 crores ) might have been lost on the day of acquisition.
According to ABC Live source “the whole deal was a set up. The reserves were created from thin air. There were no reserves. The production levels projected were false. It was an elaborate hoax or fraud and OVL walked into it with Rs 10,000 Crores. It lost Rs 5,000 Crores on the day it acquired Imperial.”
OVL had to reduce the proven reserve size of the asset during 2009-10 by 1.527 million tons, according to CAG, "indicating the inflated size of reserves estimated by the company at the time of its acquisition." The real reserves, according to ABC Live investigation are much lower. OVL strenuously ignored warnings by Russian natural resources ministry that warned that the reserves of Tomsk Company were just a fraction of declared reserves. In fact OVL did everything to avoid contact with any Russian companies, experts or authorities lest they might state the obvious facts and truth of low reserves and low production of the company OVL intended to pay Rs 10,000 Crores for.
ABC Live investigation shows that OVL might not be a victim but an active participant in this loss to Indian exchequer. Despite strategic partnership between India and Russia, OVL chose not to acquire an asset directly in Russia. In fact the company management made extreme efforts to not involve any Russian or Indian advisers.
According to ABC Live source India’s state owned foreign oil exploration and Production Company chose to buy a Russian asset through a “circuitous route so large chunks of money could be paid out without any scrutiny.” OVL bought a UK company with oil reserves in Russia. But then, it did something that baffles experts. OVL did not even buy the UK Company. Instead OVL registered a offshore shell company in Cyprus and paid nearly USD 2 billion to this Cyprus company bank account.
According ABC Live source, the Cyprus Company was the conduit for suspicious payments that went not only to Imperial Energy. “ The acquisition goes against every tenet of strategic friendship and security relationship between India and Russia which has been reinforced since Vladimir Putin became President of Russia in 2000. “ President Putin has wanted a closer relationship between Indian and Russian state oil companies. It’s no secret. He personally invited Mani Shankar Aiyer, then Petroleum Minister of India to actively invest in Russian oil sector. Senior Russian officials were furious when OVL chose to not only ignore the Russian warnings about Imperial but went behind their backs to make an acquisition through a Cyprus company.” According to a security expert “OVL literally slapped India’s closest security partner in the face and then lost Rs 5,000 Crores.”
The want of a local partner became painfully evident when nearly all staff and management of the acquired company in Russia left the company premises with stacks of papers once the money had been into the Cyprus Company and disbursed to various parties. In one move, all evidence of OVL’s acquisition had been erased. It took three years real production to show the extent of damage OVL had caused to Indian exchequer. Some of those documents were handed to ABC by an informed and show that the production levels and reserves were indeed inflated dramatically for OVL to pay the nearly 10,000 cores it did to a Cyprus company.
CAG was scathing in its report of OVL "The fact that the company even now is not in a position to generate a realistic production profile and bring out an economic analysis confirms that all the problems associated with these fields were not properly assessed at the time of evaluation of opportunity which led to poor production performance and consequent losses."
OVL’s mission under managing director R S Butola is to be a world-class exploration and production company providing security oil to the country. Experts say that none of oil produced by OVL has ever reached India. “Their oil does not come to India, they do not swap it for cheap oil, they give no jobs to Indian engineering companies, none of these foreign companies have serious Indian participation,” according to a UK based oil security analyst who preferred to be anonymous. “I would argue they are the Trojan horse in Indian energy security, exposing India to enormous unnecessary risks in far off countries as is already demonstrated by South Sudan write off and spending money as if they are flatting on sea of oil. Even oil kingdoms do not waste money like OVL does. The whole notion that OVL is a company proving oil security to India is absurd and a sick joke.”Just how sick the joke is becoming evident from the manner in which OVL secretly disbursed money far from the eyes of Indian and Russian governments through a Cyprus Shell Company steeped in secrecy.
The ABC Live informer says that “Cyprus Company had paid large undisclosed amounts as commissions, kickbacks for the hyper inflated valuation of the UK-Russian company. The amounts paid as consultancy, commissions and fee amount to nearly USD 200 million. Who the end beneficiary of this largesse is, only [R S ] Butola knows.
Repeated inquiries by ABC Live online and filings for RTI have brought some but limited disclosures from OVL. When asked under RTI to inform the dates and exact amount paid by ONGC Videsh Limited (OVL) to acquire the Imperial Energy UK for its oil assets, including the name of currency and the mode of payment, OVL was not forthcoming. Nor did OVL inform the names of banks through which money was paid . OVL refused to provide a copy of the due diligence made prior to acquisition that could have shed some light on who inflated the reserves and production levels. OVL did provide a balance sheet of Cyprus company Jarpeno Ltd but gave no information of who received how much of the USD 2 billion that were paid to Jarpeno from India.
Now three years later, disturbing pieces of information are emerging that lead back to Indian officials who made the fateful decision to pay Rs 10,000 Crores in foreign exchange for near empty oil wells in deep Russian Siberia through secret routes in Cyprus.
My Investigative Report on India's Oil security Dream at ABC Live below link
OVL’s Fraudulent Acquisitions Shatters India’s Oil Security Dream
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