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ASIAN DEVELOPMENT BANK PCR: IND 25020
PROJECT COMPLETION REPORT
ON THE
GANDHAR FIELD DEVELOPMENT PROJECT(Loan No. 1117-IND)
INDIA
November1998
CURRENCY EQUIVALENTS
Currency Unit - Rupees (Re/Rs)
At Appraisal
At Project Completion(as of 28 May 1991)
(as of 01 August 1997)Rel.00 =
$0.040
$0.028$1.00 =
Rs26.00
Rs35.66
ABBREVIATIONS
CPFDMCEIRRFIRRGAILGGSICBIOGPTIPSEMIRSLPGMPNGNGLONGCPCRPlOSEMTAU&O
- Central Processing Facilities- Developing Member Countries- Economic Internal Rate of Return- Financial Internal Rate of Return- Gas Authority of India Limited- Group Gathering Station- International Competitive Bidding- Institute of Oil & Gas Processing Technology- Institute of Petroleum Safety and Environment Management- Institute of Reservoir Studies- Liquefied Petroleum Gas
Ministry of Petroleum and Natural Gas- Natural Gas Liquids- Oil and Natural Gas Corporation Ltd.- Project Completion Report
Project Implementation Office- Safety & Environment Management- Technical Assistance- Utility & Offsite
WEIGHTS AND MEASURES
BCMkmMMCMMMCMDMMT
(billion cubic meters)(kilometer)(million cubic meter)(million cubic meter per day)(million tons)
1,000 MMCM1,000 metersunit of gas volumeunit of gas volume per dayunit of oil volume
NOTE
(i) The fiscal year (FY) of the Government and ONGC ends on 31 March. FY before acalendar year denotes the year in which the fiscal year ends, e.g., FYI 998 ends on 31Marth 1998.
(ii) In this Report, "$" refers to US dollars.
CONTENTS
Page
vi'
1
I
122334555667
7
788
9
911
12
1213
BASIC DATA
• MAP
I. PROJECT DESCRIPTION
II. EVALUATION OF IMPLEMENTATION
A. Project ComponentsB. Implementation ArrangementsC. Project CostsD. Project ScheduleE. Engagement of Consultants and Procurement of Goods and ServicesF. Performance of Consultants, Contractors, and SuppliersG. TrainingH. Conditions and CovenantsI. DisbursementsJ. Environmental ImpactK. Performance of the Borrower and the Executing AgencyL. Performance of the Bank
III. EVALUATION OF INITIAL PERFORMANCE AND BENEFITS
A. Financial PerformanceB. Economic PerformanceC. Attainment of Benefits
IV. TECHNICAL ASSISTANCE
A. Safety and Environmental Management of ONGC's ActivitiesB. Petroleum Exploration and Development Risk Contracts
V. CONCLUSIONS AND RECOMMENDATIONS
A. ConclusionsB. Recommendations
APPENDIXES 15
III
India1117-INDGandhar Field Development ProjectOil and Natural Gas Corporation Ltd. 1
Oil and Natural Gas Corporation Ltd.
267.00 million
198.56 million
57.00 million (26 July 1995)
10.00 million (12 July 1996)
1.44 million (1 August 1997)IND 489
08 May 199128 May 1991
16 Oct 199119 Oct 1991
14 Nov 1991
08 Jan 1992
Six months variable OCR 2 rate204
Final Disbursements
Time Interval
I Aug 1997
58.4 months
Original c1oslng Date
Time Interval
31 Mar1996
47.5 months
BASIC DATA
A. Loan Identification1. Country2. Loan Number3. Project Title
4. Borrower5. Executing Agency6. Amount of Loan (Original)
Amount of Loan (Net of cancellation)First CancellationSecond CancellationThird Cancellation
7. PCR Number
B. Loan Data1. Appraisal
- Date Started- Date Completed
2. Loan Negotiations- Date Started- Date Completed
3. Date of Board Approval
4. Date of Loan Agreement
5. Date of Loan Effectiveness- In Loan Agreement- Actual- Number of Extensions
6. Closing Date- InLoanAgreement- Actual- Number of Extensions
7. Terms of Loan- Interest Rate- Maturity (number of years)- Grace Period (number of years)
8. Disbursements
a. Dates
Initial Disbursements
15 Oct 1992
Effective Date
6 May 1992
formerly the Oil and Natural Gas Commission2 OCR: ordinary capital resources
07 Apr 199206 May 1992One
31 Mar199601 Aug 1997One
b. Amount ($ million)
Last Net Undis-Original Revised Amount Amount bursed
Category Allocation Allocation Available Disbursed Balance
1 Drilling Services 21.66 50.47 - 50.47 -2 Workover Services 4.14 4.32 - 4.32 -3 Equipment & Materials 135.29 72.82 - 72.82 -4 Surface Proc. Facilities 16.90 24.87 - 24.87 -5 Utility & Offsite 12.91 36.97 - 36.97 -6 Safety & Environment 1.00 0.21 - 0.21 -7 Consulting Services 1.00 0.08 - 0.08 -8 Training 1.50 0.42 - 0.42 -9 IDC 30.00 8.40 - 8.40 -10 Unallocated 42.60 - - - -
Total 267.00 198.56 - 198.56
9
Local Costs (Financed) Nil
C. Project Data
Project Cost ($ million)
Appraisal Actual Cost Overrun!Estimate Savings
Foreign Exchange Cost 321.0 247.6 73.4Local Cost 389.0 286.3 102.7
Total Cost 710.0 533.9 176.1
2. Financing Plan ($ million)
Appraisal Estimato ActualForeign Local Total Foreign Local Total
Implementation Costs
Borrower-FinancedBank-FinancedOther External Financing
Total
IDC Costs
6.4 389.0 395.4
267.0 - 267.0
47.6 - 47.6
321.0 389.0 710.0
34.6 286.3 320.9
198.6 - 198.6
14.4 - 14.4
247.6 286.3 533.9
Borrower-Financed - - - 17.0 - 17.0Bank-Financed 30.0 - 30.0 8.4 - 8.4Other External FInancing 7.6 - 7.6 - - -
Total 37.6 - 37.6 25.4 - 25.4
iv
3. Cost Breakdown by Project Components ($ million)
Appraisal Estimate ActualForeign Local Total Foreign Local Total
(a) Base Cost
Land Acquisition - 0.63 0.63 - 0.63 0.63Civil Works - 3.41 3.41 - - -j
Building - 10.11 10.11 - - -Drilling Services 28.87 87.15 116.02 50.54 133.22 183.76Workover Services 4.14 23.70 27.84 4.21 29.73 33.94Equipment & Materials 168.89 44.85 213.74 95.36 44.31 139.67Surface Processing 17.28 40.38 57.66 25.05 13.96 39.01
FacilitiesUtility & Offsite Facilities 18.12 45.16 63.28 45.79 31.08 76.87Safety & Environmental 1.00 2.67 3.67 0.33 0.27 0.60Control Equipment
Engineering Services - 6.77 6.77 - 5.19 5.19Consultancy Services 1.00 0.08 1.08 0.08 - 0.08Training 1.50 0.14 1.64 0.88 0.28 1.16Duties & Taxes - 48.55 48.55 - 27.59 27.59
(b) Contingencies
Physical Contingency 19.20 26.63 45.83 - - -Price Escalation 23.40 48.77 72.17 - - -
(c) Interest During Construction- Bank Loan 30.00 - 30.00 8.40 - 8.40- Others 7.60 - 7.60 17.03 - 17.03
Total 321.00 389.00 710.00 247.67 286.26 533.93
The cost incorporated in the drilling/workover services.
4. Project Schedule
Appraisal Estimate ActualStart End Start End
a. Drilling
Procurement of EquipmentlWell Materials Apr-91 Sep-93 Apr-91 Feb-97• Delivery of Equipment/Materials Jul-92 Sep-94 Aug-92 Dec-96
Procurement of Contract Drilling and Workover Apr-91 Mar-92 Nov-91 Mar-94Mobilization of Contract Drilling Apr-92 Oct-92 Jan-93 Dec-93
• Development Drilling- Own Rigs Jul-91 Mar-95 Jul-91 Jun-97- Contractors Rigs Nov-92 Mar-95 Jan-93 May-97
Workover Nov-92 Mar-95 Feb-94 Mar-97
b. Surface Facilities
Engineering Apr-91 Mar-92 Apr-91 Mar-94Procurement
- Tendering Oct-91 Sep-93 Jan-92 Jul-94- Award of Contracts Apr-92 Sep-93 Sep-92 Jul-94- Delivery of Equipment/Materials Oct-92 Sep-93 Jan-93 Jul-95
Construction Apr-92 Jan-94 Sep-92 Apr-97Commissioning Jan-94 Mar-94 Mar-97 Jun-97
c. Consultancy
Engagement of Consultants Apr-92 Mar-93 - -Consultants in Field Oct-92 Sep-93 - -
d. Training Oct-92 Mar-94 May-95 Jun-97
The group gathering station is expected to be completed by December 1998; the processing facilitieswere commissioned in June 1997.
vi
D. Data on Bank Missions
No. of No. of SpecializationName of Mission Date Persons Person-Days of Members
Fact-finding 10-15 Sep 1990 2 12 A, 0
Appraisal 08-28 May 1991 4 84 A, B, C, 0
Inception 10-18 Jan 1992 2 18 A, F
Review 1 28Jul-7Aug 1992 1 11 AReview 2 9-17 Mar 1993 3 14 A, E, FReview 3 7-19 Jul1994 2 19 A, FReview 4 30 Nov - 8 Dec 1994 2 18 A, GReview 5 17-29 Jul 1995 2 26 AReview 6 5-9 Feb 1996 2 10 AReview 7 13-17 Jan 1997 2 10 AReview 8 25-28 Nov 1997 2 8 A
PCR 2 23-27 Mar 1998 3 15 A
1 A - engineer, B - financial analyst, C - counsel, D - economist, E - procurement/consultant specialist,F - control officer. G - programs officer, and H - loan administration staff.
2 This report was prepared by the Project Completion Review mission that visited Ankleshwar during 24-28 March 1998.The mission consisted of Chong Serp Chung, Mission Leader, M. Alam, Project Implementation Officer, and V. R. Mehta,Staff Consultant. V.V. Subramanian, Investment Officer, and Riti Kapoor. Project Assistant assisted in the preparation ofthe Project Completion Report from the India Resident Mission.
Note: Depth in meters below mean sea level.
DAIIEJ
REA
VII
STRUCTURAL MAPOF THE
GANDHAR FIELD
PHASE II AR EA
DEVLAI,,, -. — * - -
224 Wells
iT4llI'KARI
A/ ,// _____
I/I
Early Producon Sys4m DiSco'iery Well /
PHASEIAREA
a IfU Wells Cerrel Processing Facilities
ARABIAN SEA
Well
Contour
Area Boundary
/ 1.—•• /C a in Ii a -
—
/ /,
GOLA9APAKHA4AN AREA
-
\irmada R,cr
WELL LOCATIONS ANDMAJOR FACILITIES IN THE 0
GANDHAR FIELD /' 0/
/ 0/
/
0\0/
0Phase II Area ! 0 0000 0 Phase I Area 00 o%0/0o
0
'0
/ 0 ! 000 00 0 Central Ptceasing Facilities
' o°l 00 0 o%00.0 0
0 0 Oj000 0 0 0 0 000
/ 00 0o0pO %0 0 0 0
/ 0 0 l!i-°- 0 0 0 0000 0 0 0 0 °GGS-IIo Q o /000100:0
o°0o
0 000 0 0
0 0 0 0 0 0
0 0 /
00 0
10 0
0 0 /
'0 /0 0
j00:
GGS-IV
0 o Wells
0 00 0 Group Gathering Station (GGS)-0 _O9 0-
Area Boundary
PROJECT DESCRIPTION
1. The main objectives of the Gandhar Field Development Project were toaccelerate the development of indigenous oil and gas resources to reduce energy shortages foreconomic growth especially industrial development, lower dependence on oil imports, and savescarce foreign exchange during the early 1990s. The Project also aimed at improvingoperational and managerial efficiency of the Oil and Natural Gas Corporation Ltd. (ONGC), theExecuting Agency of the Project, and assisting ONGC in addressing safety and environmentalissues and in improving its technical and operational capabilities. Another important objectivewas to encourage greater private sector participation in oil and gas development in India and toprovide additional petroleum-based industrial feedstocks and fuels that are more efficient andenvironment friendly than coal.
2. The Project was developed as the second phase of the Gandhar field, i.e.,Gandhar field Phase II development, following the first phase of the Gandhar field under WorldBank financing, which aimed at producing 8.3 million tons (MMT) of oil, 8.7 billion cubic meters(BCM) of gas, 0.51 MMT of liquefied petroleum gas (LPG), and 0.81 MMT of natural gas liquids(NGL) during its economic life. Phase II aimed at incremental production of 19.4 MMT of oil,and 20.5 BCM of gas and condensate during the economic life of the Project. The condensatewas to be further processed in a fractionation plant to produce 1.3 MMT of LPG and 2.5 MMT ofNGL under the Project.
3. The main components of the Project comprise
(i) drilling of 216 oil, gas, and water, as well as gas injection, wells;(ii) workover of 125 wells;(iii) installation of surface facilities for oil and gas production;(iv) construction of facilities for water treatment and for water and gas injection, as
well as utility and offsite facilities;(v) safety and environmental control facilities;(vi) consulting services for Project implementation; and(vii) training of personnel of ONGC.
II. EVALUATION OF IMPLEMENTATION
4. The chronology of major events in Project implementation is given in Appendix 1.
A. - Project Components
5. There was no major change in the scope of the Project except for a few areas(see Appendix 2 for the original and actual scopes of the Project). The use of internationalconsultants and the training of staff were not fully carried out as agreed at appraisal. ONGC isgenerally reluctant to using of international consultants, and is inclined to utilize the servicesavailable from a few specialized institutes developed under the aegis of ONGC, such as theInstitute for Reservoir Studies (IRS), Ahmedabad, the Institute of Oil and Gas ProcessingTechnology (IOGPT), Panvel, and the Institute of Petroleum Safety and EnvironmentManagement (IPSEM), Goa. ONGC used only about $78,000 of the $1.0 million allocated forconsulting services, and has not fully utilized the loan proceeds allocated for training (about
2
$418,000 used against the allocated amount of $1.5 million). ONGC explained that it wascarrying out its staff training using its own resources (para. 18).
6. The fractionation, dew point depression, and gas dehydration units, for which theforeign exchange of about $5.9 million and local currency of about $17.9 million equivalent wereallocated, were not implemented. After appraisal, the Government decided to transfer all gasprocessing, transportation, and marketing functions from ONGC to the Gas Authority of IndiaLtd. (GAIL). As a result of this decision, implementation of the fractionation plant wastransferred to GAIL outside of the Project. The impact of this transfer on the Project, however,was minimal because the condensate, which would have been further processed through theplant to produce LPG and NGL, could be spiked to crude oil without being processed. WhileLPG and NGL are more value-added products, there were cost savings by not installing theseunits. Consequently, LPG and NGL are not being produced under the Project. GAIL,however, postponed the building of the planned LPG plant near the Project site because of agreater demand for gas and a small amount of condensate from the Gandhar field.
B. Implementation Arrangements
7. Implementation arrangements envisaged at appraisal were adequate 1 . ONGC,the Borrower and Executing Agency, established a project implementation office (PlO) atAnkleshwar, Gujarat, headed by a general manager who was assisted by two deputy generalmanagers in charge of materials management and finance. Day-to-day coordination with theBank was mainly conducted by the two deputy general managers who were supported by tenprofessional staff. The PlO was well established in a separate and spacious office where allrelevant documents such as the Bank's Appraisal Report and procurement guidelines, as wellas modern office equipment were kept. Overall Project implementation was reviewed eachmonth by the regional director, the Western Regional Business Centre (WRBC) located inBaroda. An organization chart of ONGC showing WRBC, Ankleshwar PlO, and other officesare provided in Appendix 3. The PlO was considered satisfactory in terms of the physical setup,composition, and management, but the turnover of staff was high due to staff promotion andtransfer during Project implementation.
C. Project Costs
8. At appraisal in October 1991, the Project cost was estimated at $710.0 millionequivalent, consisting of $321.0 million (45.0 percent of the total cost) in foreign exchange and$389.0 million equivalent (55.0 percent of the total cost) in local currency cost. The total Projectcost at completion was $533.9 million equivalent, consisting of $247.6 million (46.4 percent ofthe total cost) in foreign exchange cost and $286.3 million equivalent (53.6 percent) in localcurrency cost. Thus there were cost savings of $176.1 million equivalent, comprising $73.4million in the foreign exchange cost and $102.7 million equivalent in the local currency cost.Appendix 4 provides estimated and actual Project costs, and Appendix 5 provides the averageexchange rates used in converting the local currency to dollar equivalent.
9. The foreign exchange cost savings are due to (i) the Government's decision totransfer the construction of the fractionation plant (about $5.9 million) to GAIL; (ii) savings fromthe contingency (about $42.6 million), which were not needed as the prices of equipment and
1 Appraisal Report of the Gandhar Field Development Project, October 1991, paras 82 and 83.
3
materials were reasonable due to efficient international competitive bidding (ICB); (iii) savings ininterest as well as self-financing of part of the interest and commitment charges by ONGC(about $18.6 million); and (iv) miscellaneous savings due to the imposition of liquidateddamages for the delayed supply of some equipment and material. The local currency savingsin dollar terms are largely due to (i) depreciation of the rupee during Project implementation, (ii)cost savings through competitive bidding, (iii) nonimplementation of the fractionation facilities(about $17.9 million equivalent), and (iv) duties and taxes (about $21.0 million).
10. The actual cost of drilling services increased by $67.7 million compared with theappraisal estimate for the following reasons: (i) an additional eight wells were drilled; (ii)meterage was increased due to an increase in target depths of the wells; and (iii) there was anincrease in site development, road, and transport expenses over a large area. However, theactual cost of equipment and materials was lower by $74.1 million compared with the appraisalestimate mainly because fewer tubing and casing pipes were required during Projectimplementation.
11. The Bank was to arrange cofinancing of $33.2 million to meet the expectedshortage of funds to meet the foreign exchange cost. However, there were large savings inforeign exchange in the process of Project implementation (para. 8) and thus the cofinancingarrangement was not needed.
0. Project Schedule
12. The actual implementation schedule compared with the original is shown inAppendix 6. The Project was to be completed in March 1995. However, the Project wasconsidered virtually completed in June 1997 when the major drilling work of 224 wells and themain part of the central processing facilities (CPF) were completed. Therefore, the overalldelay in the Project is about two years and three months. The delay was mainly due to fourreasons. First, a substantial delay was caused by one of the three drilling contractors becauseof a problem with the ONGC labor union. Second, there was an approximately 18 month delayin awarding the contract for charter hire of workover rigs. Due to unreasonably high bid prices,the original tender had to be cancelled, and retendering was carried out, resulting in a delay ofabout one and a half years. Third, there were serious delays in the construction of utilities andoffsites (U&O) and the group gathering station (GGS) under the CPF caused by the contractor'sinefficient management and cash flow problems. The U&O and GGS are now expected to becompleted by December 1998. However, this has not adversely affected the performance of theCPF as the capacities of the existing U&O and GGS were sufficient to handle the current oilproduction, which was lower than the appraisal estimate. Fourth, there was about a 12 monthdelay in the procurement of injection pumps due to an unexpected change in their technicalspecifications.
E. Engagement of Consultants and Procurement of Goods and Services
1. Consultants
13. As decided at appraisal, ONGC. using its own resources, appointed anexperienced Indian engineering firm as the consultant to assist in the design and procurementof the CPF and the water treatment plant, and their supervision work. The consultantsconducted their assignments well, in accordance with the terms of references. Accordingly, the
4
consultants' performance was evaluated by ONGC as generally satisfactory and the Missionendorses ONGC's evaluation.
14. ONGC did not utilize the services of international consultants as agreed duringappraisal. Of the $1 million allocated for consulting services, they utilized only $77,760 for thethird party inspection of 48 units of wellheads and superstructure for inspection of theequipment before shipping. ONGC was reluctant to recruit international consultants forspecialized consulting services using the loan funds, and used its own experts from itsspecialized research institutes such as IOGPT, IPSEM, and IRS. ONGC clarified that it used itsown resources or grant money from other agencies rather than the Bank loan, for theengagement of international consultants for reservoir management, improvement of financialmanagement, and organizational restructuring matter. For the specialized services on waterand gas injection under the loan, however, ONGC agreed to recruit international consultantsunder the Project. But they changed their mind after receiving Bank approval of their proposedrecruitment of an international consulting firm and used the in-house services of IOGPT.
2. Procurement
15. The Bank approved advance action for procurement to expedite projectimplementation. ONGC carried out the procurement of materials and equipment financed bythe Bank loan in accordance with the Banks' Guidelines for Procurement. While no seriousprocedural problems were encountered, ONGC stated in its Project completion report (PCR)that it normally took a substantially long time for procurement because of the time required forthe preparation of tender documents, evaluation of bids, and award of contracts under theBank's Guidelines. Appendix 7 provides the time taken for procurement activities for the majorpackages.
16. In the case of the procurement of charter-hire of workover rigs, ONGC found thebid prices under the original tender to be too high (by about 40 percent). ONGC took 12months for bid evaluation by comparing the bid price with similar bids carried out previously,and decided to carry out retendering. As a result, the workover rig contract was awarded about18 months later than originally planned, but there was about a 15 percent cost savings becauseof this retendering.
F. Performance of Consultants, Contractors, and Suppliers
17. ONGC decided to use a domestic consulting firm for design and preparation ofbid packages for about 5,400 person-months, using its own resources. The firm's performancewas generally satisfactory (para. 13). Performance of the international firm that was hired forthe third party inspection of 48 units of wellheads and superstructure was not rated satisfactoryby ONGC as several leakages were found in their installation process, and ONGC did not payabout 10 percent because of poor performance. ONGC informed the Bank that the performanceof most of the contractors and suppliers was satisfactory. However, the performance of thecontractor for U&O and GGS was unsatisfactory, and their installation has been delayed byabout three years. It is now expected that the contractor will complete the work by December1998. ONGC assured the Bank that the remaining payments to the contractor would be madeby ONGC from its own resources. The contractors for the combined-cycle power plant andcrude stabilization units completed their works 17 months and 12 months later than scheduled.
5
G. Training
18. A total of 111 staff members amounting to 36 person-months receivedinternational training in 18 different fields, such as horizontal well analysis, corrosion control,and logging and cement evaluation, compared with an estimated 150 person-months ofinternationa! training. The trainees were sent to oil and gas training institutes and specializedfirms in Australia, Canada, France, Netherlands and the United States. The participants in thetraining programs stated that they greatly benefited from the training by learning about newtechnologies in their respective areas and were able to utilize the knowledge they obtained fromthe training courses. A list of training courses with relevant information is provided in Appendix8. Of the $1 .5 million allocated for international training, ONGC utilized only $417,867. ONGCalso carried out its domestic staff training satisfactorily at relevant training institutions using itsown funds. Concerning the low utilization of the loan funds, however, ONGC clarified that it hasbeen undertaking a continuous training program, both international and domestic, for its staff atall levels using its own resources.
H. Conditions and Covenants
19. The loan was declared effective on 6 May 1992, a month later than the expecteddate of 7 April 1992. The status of compliance with major covenants under the loan ispresented in Appendix 9. Most covenants have been complied with, including all the financialratio covenants.
20. The Government, however, was not able to comply with the covenant on oil andgas pricing during Project implementation. The price of crude oil to be paid to ONGC has beenlinked to 75 percent of international prices from 1 April 1998. The price of domestic crude is togradually move to reach parity with international prices by FY2003. The announcementregarding the revised pricing of gas was delayed, and the revised price became effective onlyfrom October 1997. The consumer price of gas has been linked as a percentage of theprevailing prices of a basket of fuel oils. The linkage is defined as 55 percent of the basket inFYi 998, 65 percent in FY1999, and 75 percent in FY2000. The price of gas is expected tomove to the fuel oil parity after a review of the position in FY2001 and FY2002 (Appendix 10).The covenant on oil and gas pricing was closely pursued by the Bank with the Government andrelevant agencies such as ONGC under the Project, as well as the Hydrocarbon SectorProgram Loan 1 . The administered pricing mechanism has now been moving toward a marketdetermined pricing mechanism (Appendix 10). In view of the above, the Government has notyet fully complied with the covenant, but with Bank's consistent efforts, it is expected that theGovernment will fully comply with the covenant by dismantling the administered pricingmechanism by FY2003.
I. Disbursements
21. Total disbursements under the loan amounted to $198.6 million equivalent of aloan amount of $267 million equivalent. An amount of $67 million was cancelled on twooccasions as loan savings, i.e., $57 million on 26 July 1995, $10 million on 12 July 1996. Theundisbursed balance of $1,436,822 was cancelled at loan closure on 1 August 1997. Thedisbursements were slower than expected at appraisal due to the delays in procurement and a
Loan No.1148-IND: Hydrocarbon Sector Program Loan, approved on 17 December 1991.
consequent two year and three month delay in Project implementation. The statement of actualdisbursements compared with the projected disbursements reflected in the annual LoanFinancial Information System (LFIS) is provided in Appendix 11.
J. Environmental Impact
22. No adverse effect on the environment resulting from the new facilities under theProject has been observed. All facilities have adequate environment protection and controlsand safety devices in the design of the Project facilities. The gaseous emissions are withinpermissible limits of the Gujarat Pollution Control Board, and the effluents generated are withinthe standards stipulated by the Ministry of Environment and Forests. The well drilling andworkover of wells have been carried out in accordance with the industry's safety practices. Asthe gas produced under the Project is being used mainly in the power, fertilizer, and otherindustries, and replaces more polluting fuels used earlier, the Project has had environmentallypositive effects on the industries concerned.
23. ONGC has prepared a disaster management plan to implement therecommendations made in the report prepared by an international consulting firm engaged forthe accompanying technical assistance (TA), Safety and Environmental Management ofONGC's Activities 1 , under the Project (Appendix 16). ONGC confirmed that it has beenimplementing the recommendations made by the consultants under the TA, such as building upsafety and environmental awareness among staff, setting up a computerized archive system,regularly maintaining facilities, and institutionalizing the cost control system.
K. Performance of the Borrower and Executing Agency
24. ONGC was the Borrower and also Executing Agency of the Project. Theperformance of the Borrower was satisfactory. However, at the beginning of Projectimplementation ONGC was not familiar with the Bank's procurement guidelines and ONGC took4 to 12 months to evaluate the bids for ICB packages such as the charter-hire-drilling package.This resulted in a delay in awarding contracts and contributed to delays in the overallimplementation of the Project (Appendix 7).
25. As discussed earlier, the Borrower was reluctant to use international consultantsto obtain expert advice and recommendations on technical areas, including workoveroperations, high pressure gas injections, and safety and environmental management (SEM)activities. However, the SEM component was studied by international experts under theaccompanying TA for Safety and Environmental Management of ONGC's Activities. The TAconsultants made specific recommendations on the SEM aspects described in para. 23; theseare being implemented by ONGC.
26. There was an initial delay in carrying out the training of ONGC staff and ONGCdid not fully implement the staff training as envisaged at appraisal (actual 36 person-monthsagainst the appraisal plan of 150 person-months). However, ONGC has been regularlyconducting their international as well as domestic training programs out of its own funds as partof its corporate policy. ONGC clarified that it has been spending a substantial amount for the
TA No.1597-IND: Safety and Environmental Management of ONGC's Activities, approved on 2 January 1992.
7
last five years (about the equivalent of $2 million on average annually) on training to upgradeskills and knowledge of its employees.
27. ONGC is undergoing a process of restructuring following the recommendationsmade by a firm hired by ONGC. ONGC has been converted from a Government commission(formerly, Oil and Natural Gas Commission) to a public company (now, Oil and Natural GasCorporation Limited) as part of the restructuring during Project implementation. About 4 percentof the Government's share in ONGC equity has been divested as part of the Government'songoing effort to give managerial and financial autonomy to ONGC. The Government hasembarked upon various reforms for petroleum, like the introduction of new exploration andlicensing policy for the upstream sector, gradual abolition of the administered pricingmechanism, and introduction of a market-determined pricing mechanism for petroleum productsand natural gas (Appendix 10).
L. Performance of the Bank
28. The Bank closely monitored the progress, fielded review missions regularly, andprovided practical and useful advice on a number of areas including procurement, projectmanagement, and staff training. ONGC noted in its PCR a positive approach taken by theinception and review missions, and the Bank's performance as satisfactory. ONGC, however,considered that the stages involved in seeking Bank approval of procurement of ICB packagesrequired a large amount of paper work, such as the preparation of draft bidding documents andthe technical and price evaluation of bids and the time-consuming procedures contributed todelays in procurement by at least two months in several cases.
29. The Project was delegated for administration to the Bank's India ResidentMission in January 1996. In addition to regular full reviews by the Bank's review missions, theProject was reviewed at the biannual meetings, at the Resident Mission, by the Bank andONGC, and at tripartite portfolio review meetings at the Department of Economic Affairs (DEA).ONGC and the Department found these bilateral and tripartite review meetings highly useful inaddressing the main constraints and agreeing on steps and targets to be met for effectiveimplementation.
III. EVALUATION OF INITIAL PERFORMANCE AND BENEFITS
A. Financial Performance
30. The financial reevaluation of the Project was carried out on an incremental basison the production profile provided in Appendix 12. The actual production from FY1987 toFYi 9981 and the projection based on the latest available reserve situation of the Gandhar fieldwere taken for calculation. For reevaluation of financial performance for Phase II, the totalactual costs of the Project including the estimated ones for the remaining works such as GGSwere considered. The capital costs from FY1987 to FY1990 were also taken as was done inthe Appraisal Report. The capital cost includes the costs of exploratory and development
The exploratory wells drilled earlier (before appraisal) were converted into production wells and producedhydrocarbon from FYi 987. To make an equal footing with the appraisal estimates, the actual production of oil andgas from FYi 987 was taken into account.
8
drilling, pipelines, surface facilities, utilities and offsites, and environment management. Therecalculated financial internal rate of return (FIRR) of Phase II only (pre-tax) is 33.2 percent,while that at appraisal was 78.8 percent. The pre-tax FIRR of 78.8 percent at appraisal wasapparently calculated on a gross basis and not on net of royalty and other duties. The royaltiesfor oil and gas at appraisal were 53 percent and 27 percent respectively. The FIRR (post-tax)is 25.8 percent as compared with 14.0 percent at appraisal. This variation is mainly due to (i)the difference in oil and gas prices (the basic prices of crude oil and gas at appraisal wereRs970.00 per ton of oil and Rsl ,400.00 per 1,000 cubic meters (m 3) for gas net of royalty andother duties. The prices have since increased to Rs2,004.00 per ton of oil and Rs2,003.00 per1000 m3 for gas net of royalty and other duties); and (ii) the much lower capital costs than thoseassumed at appraisal. The present estimate of production for the same period of appraisal is17.6 MMT for oil and 23.9 BCM for gas, while at appraisal it was 19.4 MMT for oil, 20.5 BCM forgas, 1 .3 MMT for LPG, and 2.5 MMT for NGL. 1 The FIRR (pre-tax) for the combined Phases Iand II is calculated at 37.5 percent, while the FIRR (post-tax) is at 27.2 percent. The majorassumptions used in the financial reevaluation and the detailed calculations of FIRR are shownin Appendix 13.
B. Economic Performance
31. The economic reevaluation of the Project was also carried out on an incrementalbasis, taking into account (i) actual production records from FY1987 to FY1998 and theprojection of production based on the latest available reserve situation of the Gandhar field; (ii)actual economic costs of the Project and estimated ones for the remaining works (all economiccosts are based on the financial cost after excluding duties and taxes); and (iii) the border pricefor crude oil based on actual import prices until FY1998 and assumed at $18 a barrel 2 fromFYi 999, while it was assumed at $25 a barrel at appraisal. The economic internal rate of return(EIRR) is calculated at 70.5 percent while at appraisal it was 51.6 percent (Appendix 14). Therecalculated EIRR of 70.5 percent is more than what was calculated at appraisal as (i) nodepletion premium is considered as oil prices are likely to remain stable; and (ii) the currentexchange rate is $1.00 equivalent to Rs43 while at appraisal it was $1.00 equivalent to Rs26.The present production estimate is quite close to what was assumed at appraisal. Consideringthat the border price for crude oil is presently quite low, a sensitivity analysis was carried out atan assumed border price of $15 a barrel from FY1999. Based on the sensitivity analysis, theEIRR has been calculated at 70.1 percent. Major assumptions used in the economicreevaluation are shown in Appendix 13 and the detailed calculations of the EIRR are shown inAppendix 14.
C. Attainment of Benefits
32. The estimated production based on the latest data available with ONGCobtained from the simulation studies by IRS indicates a lower production of oil as comparedwith the estimate at appraisal 3. The present estimate of production for the same period asappraisal is 17.6 MMT of oil and 23.9 BCM of gas (Appendix 15), while the appraisal estimatewas 19.4 MMT of oil, 20.5 8CM of gas, 1.3 MMT of LPG, and 2.5 MMT of NGL. LPG and NGL
1 The appraisal estimate did not include any data on yearly production projections, and the Appraisal Report did notindicate the period of the estimated production of oil, gas, LPG, and NGL.
2 This was based on ONGC's in-house assessment.Appraisal Report, para. 125.
9
are not produced from the Project due to the nonimplementation of the fractionation plant asdiscussed in para. 6. However, this did not affect the Project's benefits so adversely, as thecondensate which would have been used as raw material to produce higher value-addedproducts (LPG and NGL), was mixed with crude oil and could be sold without being processedat the fractionation plant.
33. ONGC started exploratory drilling of wells even before appraisal. Theseexploratory wells were converted to production wells, and thus the benefits of oil and gasproduction have accrued from FYi 991. Of the gas produced, about 15 percent is needed forinternal consumption by ONGC, and the balance is available for sale.
34. The heterogeneous nature of the Gandhar field resulted in an early breakthroughof injected water and reduced production. The field geometry and reservoir performance wasbelow expectations, resulting in reduction of in-place reserves by about 12 percent. The overallimpact is the reduction of oil production during the Project life but it contributed to the extensionof reservoir life beyond FY2O1 1. As one of the measures for the enhanced recovery of oil andgas, ONGC is presently implementing a gas lift scheme, which is expected to be successful.ONGC is also improving its field management for enhancement of its oil and gas production.
35. The Project has created about 1,700 permanent staff positions at Ankleshwarconsisting of about 1,000 skilled and about 700 unskilled positions. The Project alsoencouraged private sector participation in oil and gas development in India as the major worksunder the Project were contracted out to private companies. For instance, the Ravva field inthe eastern offshore, and the Tapti and Mukta fields in the northern part of the Mumbai Highhave been developed by private sector companies.
36. At appraisal it was expected that the Project would save about $148 million peryear on average in foreign exchange during its economic life. Based on the latest productionscenario, expected foreign exchange savings will average about $106 million per year duringthe economic life of the Project. The variance is mainly due to the border price of crude oil nowassumed at $18 per barrel, as compared with $25 assumed at appraisal, and the lowerproduction of oil than estimated at appraisal (17.6 MMT against at the appraisal estimate of19.4 MMT).
IV. TECHNICAL ASSISTANCE
A. Safety and Environmental Management of ONGC's Activities.
37. During appraisal it was recognized that because oil and gas drilling is anoperation that poses hazards to the persons involved and the environment, there was a needfor ONGC to effectively carry out the management of safety and environment aspects. Anaccompanying TA was, therefore, provided to ONGC 1 . A TA completion report was preparedfor the TA (Appendix 16), and major findings are summarized here.
1 TA No.1597-IND: Safety and Environmental Management of ONGC's Activities, for $890,000, approved on 2January 1992.
10
1. Objective and Scope
38. The objective of the TA was to ensure that ONGC is equipped with the ability tohandle the safety and environmental measures associated with oil and gas production andhandling activities. The scope of work was to (i) prepare safety and maintenance proceduresand manuals for proper inspection and maintenance of submarine pipelines and platforms inwestern off-shore; (ii) train personnel in safety and disaster management; (iii) carry out hazardand risk analysis of the operation at the Hazira complex and the Gandhar field; (iv) recycletreated wastewater from the Gandhar field for agricultural use; and (v) improve mobilemonitoring of air quality in different regions. ONGC on their part pointed out areas of particularinterest: (i) development of ONGC's environmental management system; (ii) improvement of airquality monitoring system; (iii) disaster management based on integrated risk analysis; (iv)preparation of pipelines operation, monitoring, and maintenance manual, and development ofinspection and repairing requirements procedures; and (iv) industrial wastewater managementin the area of Ankleshwar.
2. Evaluation of Inputs
39. Consultancy work was awarded to a Swiss firm in association with another Swissfirm for 29.5 person-months of expert inputs. The activities covered were
i) preparation of safety and maintenance procedures and manuals forinspection and maintenance of submarine pipelines and platforms inwestern off-shore;
ii) training of persons involved in safety and disaster management;iii) hazard and risk analysis of operation at the Hazira complex and the
Gandhar field;iv) recycled treated waste water from the Gandhar field for agricultural
use; andv) mobile monitoring of air quality in different regions.
40. The consultant visited various installations of ONGC such as the Haziracomplex, Mumbai offshore platforms, and the Gandhar CPF to inspect the relevant facilities andaudit the safety and environment aspects. The audit results were discussed with ONGC, and itwas stressed that ONGC management should address the importance of the SEM aspect withONGC staff at all levels and instruct them to follow the SEM regulations more strictly.
3. Evaluation of Outputs
41. The TA identified numerous shortcomings in ONGC's methods of implementingthe existing safety procedures; this was carried out satisfactorily by the consultants inaccordance with the terms of reference. The consultant's report provided recommendations forimprovements in the areas of safety and environmental protection practices. The majorrecommendations dealt with the preparation of manuals for operation monitoring; maintenanceof pipelines and platforms; and the need for creation of computerized data archives, a facilitiesmaintenance system, and an inventory control system. The consultant's overall performancewas generally satisfactory.
11
42. The importance of ONGC management receiving continuous feedback on theimplementation of safety and environmental management practices was strongly felt. Theconsultant recommended that there should be a mechanism for internal audit and checking byoutside agencies with regard to safety and environmental practices. It was also recommendedthat a computerized system of data archives, facilities maintenance and inventory, and stocksof spares, be developed by ONGC with the help of experts (Appendix 16).
B. Petroleum Exploration and Development Risk Contracts
43. During appraisal it was identified that the Ministry of Petroleum and Natural Gas(MPNG) should enhance the skills of its relevant staff for attracting the domestic andinternational private sector to exploration and development of medium- and small-scale oil andgas fields. In view of this, the Bank provided an accompanying TA with the Project 1 . A TCRwas prepared (Appendix 17) and the major findings are summarized here.
1. Objective and Scope
44. The objective of TA was to equip MPNG and Oil and Natural Gas Corporation(ONGC) officers with the ability to formulate suitable terms and conditions to attract domesticand international private sector participation in the rounds of bidding for petroleum explorationand development activities.
45. The scope was to engage the services of a petroleum contracts expert toassociate with a team from MPNG in evaluating the merits and drawbacks of the differentcontracting arrangements being used by the DMCs to attract the private sector in oil and gasexploration and development. The scope also envisaged the holding of a seminar to beattended by the representatives of the Government of India along with the DMCs and otherconcerned agencies. The seminar was to be a forum for exchange of information andexperience gained by different countries in the region in the variety of contracts for oil and gasexploration and development.
2. Evaluation of Inputs
46. After initial interactions with MPNG and ONGC, the consultant organized studyvisits for a team from MPNG and ONGC to five developing member countries (DMC5) of theBank, i.e., the People's Republic of China, Indonesia, Philippines and Thailand. A three-member team from MPNG and ONGC visited these countries along with the consultant. Afterthe visit, a seminar was organized in New Delhi in May 1993 where five resource personsrepresenting the DMCs and other specialists in the area made presentations on the varioussubjects of risk contracts followed by a round-table discussion. The seminar was attended byabout 60 persons representing the Government of India, the public sector undertakingsinvolved, private sector oil companies from India and abroad, and other concerned persons.
1 TA No.1598-IND: Petroleum Exploration and Development Risk Contracts, for $180,000, approved on 14November 1991.
12
3. Evaluation of Outputs
47. The TA was successful in focusing the attention of MPNG and ONGC on betterunderstanding the practices being followed elsewhere in the world, particularly by the DMCs.This had particular reference to the terms and conditions to be specified in the bid documentsand also to the evaluation of bids. During the seminar there were presentations by theconsultant, representatives from the DMCs, and other experts on the issues of flexibility ofexploration terms, nontraditional acreage contracts, natural gas provisions, administration ofpetroleum operation, and fiscal terms. The round-table discussion focused on the need for fulland free access to seismic data on a continuous basis. The discussion also identified the needfor transparency of fiscal terms and the advantages of private sector participation in explorationactivity.
48. It became clear that despite considerable convergence on the format andcontents of petroleum contracts, there were distinct approaches depending upon thecircumstances prevailing in each country. India was then found to be akin with the People'sRepublic of China in many ways, except that India has a strong private sector ready to invest inexploration and development. As there was a limitation of funds avaable for investments inexploration, it was concluded that investments would be attracted for development ofdiscovered and proven fields rather than exploration. It was also concluded that factors likesuperior contractual and fiscal regimes and efficiency of implementation would play a key role inattracting investments.
V. CONCLUSIONS AND RECOMMENDATIONS
A. Conclusions
49. The main objective of the Project to develop the second phase of the Gandharfield has been generally met. Phase II of the Gandhar field has been fully developed with thecompletion of 224 development wells and 139 workover wells compared with the planned 216and 125 wells, respectively. The CPF, which is needed for processing the crude oil and gasproduced from the Gandhar field, has also been completed, but without the fractionationfacilities (para. 6). However, because of poorly performing reservoir behavior, the actual oilproduction will be less than the appraisal estimates (17.6 MMT of crude oil and 23.8 BCM ofgas against the appraisal estimates of 19.4 MMT crude oil and 20.5 BCM gas). LPG and NGLare not produced from the Project as discussed in para. 6. The Project also contributed toemployment generation as expected and to foreign exchange savings on an annual average of$104 million against $148 million at appraisal. The Project has further contributed tostrengthening of the technical, operational, and managerial efficiency of ONGC and to greaterprivate sector participation in the oil and gas sector in the country. The Bank's involvement inthe Project was therefore justified and also timely as India had been encountering a severeforeign exchange problem. It assisted with hydrocarbon development directly and industrialdevelopment indirectly.
50. There is a general reduction of the reserves of both oil and gas, and the oilproduction from the Gandhar field as compared with the estimates at the appraisal stage. Thereasons for the shortfall as explained by ONGC (para. 34) seem reasonable considering thecomplex and heterogeneous nature of the Gandhar field. Another shortfall has been the lack of
13
production of LPG and NGL, as the fractionation plant has not been implemented. As LPG andNGL produced from condensate through the fractionation process have more value added, thebenefit without the fractionation plant could be slightly lower than anticipated. But thecondensate was spiked to crude oil and could be easily sold because of high demand.Nonimplementation of the fractionation plant, however, affected the Project marginally. Theoverall FIRR (25.8 percent after tax) and EIRR (70.5 percent) recalculated at Project completionshow that the Project is financially and economically viable.
51. Although the Project was completed with a delay of about two years and threemonths, there were significant savings in the Projct cost. The actual Project cost atcompletion was $533.9 million equivalent compared with the appraisal estimate of $710 millionequivalent. Thus there was a saving of $176.1 million equivalent consisting of $73.3 million inthe foreign exchange cost and $102.7 million equivalent in the local currency cost. The reasonfor the savings was detailed in paras. 9 and 10. The actual FIRR (after tax) is calculated at25.8 percent as against 14.0 percent at appraisal, and the EIRR is estimated at 70.5 percent asagainst 51.6 percent at appraisal. The Project is therefore considered successful.
52. The Executing Agency has generally complied with major loan covenants,including all covenants related to the financial ratios. However, the Guarantor has not fullycomplied with the covenant on oil and gas pricing. The required dismantling of theadministered pricing mechanism did not take place during Project implementation. TheGovernment announced its policy on the pricing mechanism in 1997 under which administeredpricing mechanism will be fully dismantled by FY2003.
B. Recommendations
1. General
53. ONGC's use of international consulting services was very limited. It dependedlargely on in-house services from its research and development subsidiaries. Considering therapid changes taking place in the technology used in oil and gas production, ONGC will benefitby seeking advice and recommendations from international experts on highly specializedtechnical matters such as simulation studies, reservoir management, horizontal drilling, andwater and gas injection. This will assist ONGC in facilitating technology transfer, and increasingits oil and gas production. Given the strong preference of ONGC and most public sectorundertakings in India to rely on domestic expert services, the Bank needs to establish a firmunderstanding on the rationale and justification of the use of international consulting services.It is recommended that this issue be discussed with the Government during the countryportfolio review.
54. As the oil production from the Gandhar field is expected to be less thanestimated at appraisal over the project life of 16 years, ONGC should continue to assess thereasons for low oil production, and take remedial measures to increase the production. AlsoONGC should mount its exploration efforts to identify more oil and gas fields for developmentand for increased production in the country. It is recommended that QNGC, as a large publicsector company, increase its funds for exploration, especially exploration around the Gandharfield, and for the application of a more efficient gas-lift scheme for the developed wells.
14
55. ONGC's forecasts for oil and gas production have not been consistentlyaccurate. Utilization plans of oil and gas energy resources are made well ahead of production,and various downstream projects are conceptualized based on the ONGC's productionforecasts. It is, therefore, essential that ONGC improve the accuracy of its forecasting. It isrecommended that ONGC be provided with expert assistance in forecasting future oil and gasproduction.
2. Project Specific
56. Capabilities in project management need to be strengthened through training.Particularly for large projects like this one, ONGC should dedicate a core team of staff equippedwith good project management skills. There were frequent transfers of project staff. MostONGC staff who had been acquainted with project formulation and received training under theProject were transferred to other assignments. ONGC explained that the transfer of staff tookplace as part of their regular, expected transfer and promotion. To maintain continuity inProject implementation activities, it is, however, recommended that ONGC adopt a personnelpolicy to retain the staff involved in a large project and/or received international training for atleast three years by providing incentive packages.
57. About half of the drilling work under the Project was given to private drillingcontractors as recommended at appraisal. Three contractors were engaged, and theirperformance was effective and successful. ONGC has been conducting almost all the work onseismic surveys, exploration, drilling, logging, and production. ONGC, as a large oil and gasproducer, should gradually offload its teams for support services, such as exploration, drilling,and logging, to specialized private sector companies and should concentrate on production. It isrecommended that ONGC consider introducing a production-sharing scheme with specializedoperation experts and companies.
15
APPENDIXES
Number Title Page Cited on(page,para.)
1 Chronology of Main Events in Project 16 1 ,.4Implementation
2 Original and Actual Scope of the Project 19 1,5
3 Organization Chart of the Oil and Natural Gas 20 2,7Corporation Ltd.
4 Project Costs (Original versus Actual) 21 2,8
5 Annual Average Rate of Exchange between the 23 2,8Rupee and US Dollar
6 Project Implementation Schedule (Original versus 24 3,12Actual)
7 List of Major Contracts Worth $1 million and 25 4,15Above
8 Status of International Training of ONGC Staff 27 5,18
9 Status of Compliance with Major Loan Covenants 28 5,19
10 Policy Issues on the Pricing Mechanism in the 31 5,20Petroleum Sector
11 Projected and Actual Disbursements of Loan 32 6,21Proceeds
12 Financial Internal Rate of Return of the Project 33 7,30
13 Assumptions Used for Calculation of FIRR & 34 8,30EIRR
14 Economic Internal Rate of Return of the Project 36 8,31
15 Oil and Gas Production Projections during the 37 8,32Project's Life
16 TA Completion Report - Safety and 38 6,23Environmental Management of ONGC's Activities
17 TA Completion Report - Evaluation of Petroleum 41 11,43Exploration & Development Risk Contracts
Date
199010 - 15 Sep
16
Appendix 1, page 1
CHRONOLOGY OF MAIN EVENTS IN PROJECT IMPLEMENTATION
Event
The Bank fielded a Reconnaissance Mission for gas projects. The(nvrnmnt reauested Bank assistance for the Gandhar FieldDevelopment Project (GFDP).
8 Nov The Bank approved a small-scale technical assistance (TA No. 1416-IND)for a hydrocarbon sector study for India for $100,000.
19917-25 Jan A Fact-Finding Mission visited India to carry out fact-finding work for the
GFDP.5 Apr Management Review meeting.Apr Start of the study under the TA No. 1416-IND.May The Bank received the draft final report for TA No, 1416-IND.8-28 May An Appraisal Mission visited India to discuss various aspects of the Project
with the Government agency, Oil and Natural Gas Commission, then theproposed executing agency of the Project, Overseas EconomicCorporation Fund of Japan, U. S. Agency for International Development,the Danish Embassy, and the French Embassy. At the same time, theMission reviewed the progress of the ongoing TA study on thehydrocarbon sector operations in India.
3 Jul Staff Review Committee meeting.16 - 19 Oct Loan negotiations.
Retroactive financing was approved by the Bank.24 Oct Board circulation.14 Nov Board approval of (i) a loan of $267 million for the Oil and Natural Gas
Corporation (ONGC) to carry out further development of the Gandhar fieldunder the Phase II program; (ii) a TA grant of $890,000 for the safety andenvironmental management of ONGC's activities; and (iii) a TA grant of$180,000 for a study to evaluate petroleum exploration and developmentrisk contracts.
19928 Jan10-18 Jan
6May28 Jul -7 Aug
10 Sep28 Oct8 Nov
Signing of Loan and Project agreements.An Inception Mission visited India to carry out inception work for theProject.Loan was declared effective.Review Mission (1). The mission visited the Project Implementation Office(PlO) in Ankleshwar, Gujarat and also the Gandhar field to discuss issuesrelating to procurement, staff training and recruitment of consultants,construction work and physical progress, loan covenant compliancestatus, and application of market rates for determining the exchange ratebetween the rupee and foreign currencies.Award of contract for well head & superstructure for about $1 million.Award of contract for casing pipes for about $1.1 million and $1.2 million.Award of contract for production tubings & pup joints for about $1.3 million.
1993
8 Apr21 May
25 May
26 Jul30 Nov - 8 Dec
17 Appendix 1, page 2
22 Jan25 Jan18 Feb9- 17 Mar
8 Dec
21 Dec
19949 Mar
11 Apr
16 May
8 Jun17 Jun
4 Jul4 Jul7- 19 Jul
19 Aug
19959 Jan16 Jun16 Jun
17- 29 Jul
Award of contract for charter hire for drilling rigs for about $24.1 million.Award of contract for charter hire for drilling rigs for about $13.1 million.Award of contract for charter hire for drilling rigs for about $9.9 million.Review Mission (2). The mission visited the PlO to discuss issues relatingto the overall progress of the Project, procurement, hiring of additionalworkover rigs and drilling rigs, Danish grant status, training program, andconsulting services.Award of contract for casing pipes for about $10.7 million.Award of contract for truck-mounted liquid nitrogen pumping unit for about$1.0 million.Award of contract for joint production tubings, cross overs & pup joints forabout $1.8 million.Award of contract for drill pipes for about $1.2 million.Review Mission (3). The mission visited the PlO and the Gandhar field todiscuss issues relating to drilling and field activities, procurement ofplants/stations under the central processing facilities (CPF), overallprocurement, recruitment of consultants and staff training, projections ofcontract awards and disbursements for 1994, and compliance of status ofloan covenants.Award of contract for downhole completion equipment for 9 5/8" casing forabout $1.2 million.Award of contract for casing pipes for about $1.2 million.
Award of contract for charter hire of two work over rigs for about $4.2million.Award of contract for crude stabilization unit (supply & installation) forabout $1 1.8 million and about $9.1 million.Award of contract for utilities and offsites for about $3.5 million and about$6.4 million.Award of contract for casing pipes of various sizes for $1.3 million.Award of contract for casing pipes of various sizes for $1.4 million and$2.0 million.Award of contract for combined cycle power plant for $26.8 million.Award of contract for group gathering station for $2.2 million.Review Mission (4). The mission visited the PlO and the Gandhar field todiscuss issues relating to drilling and field activities, procurement for theCPF, recruitment of consultants, international staff training, contractawards and disbursements, and status of loan covenant compliance, andthe need for the reallocation of loan proceeds.Award of contract for supply of water injection pump for $1.4 million.
Award of contract for supply of line pipes, size 12" for $1.7 million.Award of contract for supply of line pipes, size 3 1/2" for $2.4 million.Award of contract for supply of eue tubings, crossovers, and pup joints for$1.4 million.Review Mission (5). The mission visited the PlO and the Gandhar field todiscuss issues relating to drilling and field activities, procurement of theCPF, safety and environmental management (SEM) component, and othergoods, recruitment of consultants, staff training, disbursements, status of
27 Feb
12 Jul
199713- 17 Jan
3 Mar
31 Mar1 Aug
25-28 Dec
18 Appendix 1, page 3
loan covenant compliance, extension of loan closing date, cancellation ofloan savincjs and reallocation of loan Droceeds. and rociress in dilution of20 percent equity of ONGC.
26 Jul First partial cancellation of loan amount by $57 million.18 Oct Effectivity of loan closing date extension to 31 March 1997 (by 1 year).
19965 - 9 Feb
199824 - 27 Mar
Review Mission (6). The mission visited the PlO and the Gandhar field todiscuss issues relating to drilling and field activities, procurement for theCPF, procurement of goods, the SEM component, recruitment ofconsultants, staff training, contract awards and disbursements, status ofloan covenant compliance, extension of the loan closing date, cancellationof loan savings and reallocation of loan proceeds, and progress in dilutionof 20 percent equity of ONGC.Award of contract for open hole logging unit and down hole tools for about$2.7 million.Second partial cancellation of loan amount by $10 million.
Review Mission (7). The mission visited the PlO and the Gandhar field todiscuss issues relating to drilling and field activities, procurement for theCPF, procurement of goods, the SEM component, recruitment ofconsultants, staff training, contract awards and disbursements, status ofloan covenant compliance, extension of loan closing date, cancellation ofloan savings and reallocation of loan proceeds, and progress in dilution of20 percent equity of ONGC.The Bank reminded ONGC that withdrawal applications must be submittedby 15 March 1997 to process and close the loan account by 31 June 1997.Requested ONGC to submit the Project completion report (PCR) in asuggested format.Loan closing date (1st extension).Loan closing date. Cancellation of the undisbursed loan balance of $1.4million.Review Mission (8). The mission visited the Gandhar field to discussoverall Project implementation status, in particular, the issues relating todrilling and field activities, central processing facilities, staff training,recruitment of consultants, contract awards and disbursements, status ofloan covenants compliance, and the Project completion report.
Project Completion Review Mission fielded. The mission visited theGandhar field to discuss the draft PCR prepared by ONGC and to obtaininformation on the well drilling, CPF, projection for oil and gas productionfrom Phase I and Phase II of the Project, and collection of data for thefinancial analysis of the Project and the evaluation of Project benefits.
(vi) Consulting services such as (vi)- expertise in simulation studies to optimize oiland gas production
- corrosion engineering- horizontal drilling of wells- production engineering- water and gas Injection operation
(vii) Training (vii)- 150 person months of overseas training- 60 person months of training In India
19
Appendix 2
ORIGINAL AND ACTUAL SCOPE OF THE PROJECT
ORIGINAL ACTUAL
(i) Drilling of 216 oil, gas, and material gas injection (i)wells- using Oil and Natural Gas Corporation's(ONGC's) rigs - 103 wells- using contract rigs - 113 wells
(ii) Workover of 125 wells (ii)- using ONGC's rigs (63 wells)- using contract rigs (62 wells)
Drilling of 224 oil, gas, and material gas injection wells
- using ONGC's rigs - 89 wells
- using contract rigs - 135 wells
Workover of 139 wells- using ONGC's rigs (96 wells)- using contract rigs (43 wells)
(iii) Installation of Surface Facilities for Oil and GasProduction- oil and gas gathering stations
- crude oil stabilization unit (CSU)- condensate fractionation unit- dew point depression & gas dehydration unit- centrifugal off-gas compressor
(iv) Construction of facilities for formation watertreatment and for water and gas injection, as wellas utility and offsite facilities- cooling water and instrument air system- crude oil and Natural Gas Liquids (NGL)storage- Liquefied Petroleum Gas (LPG) Storage- cogeneration power plant
- water & gas injection plants- formation water treatment plants- water injection pumps- gas injection compressors
(v) Safety and Environment Control EquipmentProcurement of equipment for- fighting oil and gas fires- handling oil spills and gas explosions- monitoring of air and water effluent quality
- planting of 156,000 trees in the CentralProcessing Facilities (CPF) area
(iii) Installation of Surface Facilities for Oil and GasProduction- implemented, GGS-Vl (69.5% in March 1998, expected
to be completed by December 1998).- implemented- technically not required and dropped by ONGC.- technically not required and dropped by ONGC.- implemented under the CSU package
(iv) Construction of facilities for formation water treatmentand for water and gas injection, as well as utility andoffsite facilities- completed- completed
- completed- implemented as combined cycle power plant under
surface processing facilities- implemented- implemented- implemented- implemented
(v) Safety and Environment Control EquipmentProcurement of equipment for- fighting oil and gas fires2- handling oil spills and gas explosions2- van procured for monitoring of air and water effluent
quality- planting of 250,000 trees in the CPF area
Consulting services of International consultants were notutilized, although the services of ONGC's own in-houseResearch and Development (R&D) facilities such asInstitute of Oil and Gas Processing Technology(IOGPT); Institute of Reservoir Studies (IRS),Ahmedabad; Institute of Drilling Technology, DehraDoon; Institute of Petroleum Safety and EnvironmentManagement, Goa etc. were utilized from time to time asand when required.Training-36 person-months of international training- programs are continuously conducted both
in-house and out using ONGC's ownresources.
Total number of wells now planned are 300 vis-a-vls the 260 originally planned for both Phases I & II.ONGC decided to use equipment and facilities available at the Regional Crisis Management Centre, Baroda.
FINANCE I I OPERATIONS
EADOF HEAD OFCRBC ERBC
DIRECTOR DIRECTOR DIRECTORTECHNICAL EXPLORATION MD (OVL)
HEAD OF HEAD CNRBC SRBC
N.)CD
ORGANIZATION CHART OF THEOIL AND NATURAL GAS CORPORATION LTD.
PERSONNEL
HEAD 0MRBC
HEAD OF HEAD OFEXPLORATION OPERA11ON
CHAIRPERSON &MANAGING DIRECTOR
DRILLING
HEAD OFWRBC
HEAD OF HEAD OF HEAD OF HEAD OF HEAD OF
RAJASThAN CAMBAY MEHSANA ANKLESHW AHMEDABADPROJECT PROJECT PROJECT PROJECT PROJECT
II I _______ I IHEAD OF HEAD OF HEAD OF HEAD OF HEAD OF HEAD OFDRIWNG TECHNICAL PERSONNEL FINANCE MATERIALS MANAGEMENT
BUSINESS GP. GROUP
CRBC = Central Regional Business CentreERBC = Eastern Regional Business CentreMRBC = Mumbal Regional Business CentreMD = Managing DirectorNRBC = Nodhern Regional Business CentreOVL = ONGC Videsh Ltd.
SRSC = Southern Regional Business CentreWRBC = Western Regional Business Centre
-D
CD
Q.
c)
- 13.92 13.924.14 9.78 13.92
4.14 23.70 27.84
61.33
0.73 62.06
1.98 - 1.98
7.48 • 7.48
0.56
0.98 1.54
0.17 - 0.17
0.33 - 0.33
2.88 - 2.882.51 2.515.83 5.835.45 5.45
0.22
4.71 4.93
30.57
0.60 31.17
19.33 - 19.33
3.52 - 3.52
7.84 - 7.84
1.47 • 1.47
1.58 - 1.58
1.34 - 1.34
3.05 - 3.05
2.56 • 2.56
0.92
- 0.92
0.77 • 0.77
13.32
21.04 34.36
1.48
2.34 3.82
1.49 - 1.49
4.20
0.66 4.86
0.50
- 0.50
168.89
44.85 213.74
- 29.73 29.734.21 - 4.21
4.21 29.73 33.94
20.081.173.30
0.160.04
1.1027.8412.236.821.002.240.470.550.081.041.393.930.386.922.891.080.65
3.497.256.006.57
18.001.501.50
20.081.173.30
0.160.04
3.497.257.10
34.4112.236.821.002.240.470.550.081.041.393.930.38
24.924.392.580.65
95.36
44.31 139.67
21
Appendix 4, Page 1
PROJECT COSTS (ORIGINAL VERSUS ACTUAL)($ million)
Appraisal Estimate Actual CostItem Foreign Local Total Foreign Local Total
Exchange Currency Cost Exchange Currency Cost
Land Acquisition - 0.63 0.63 - 0.63 0.63Civil works - 3.41 3.41 - - -Building - 10.11 10.11 - - -
A. Drilling Services a- UsingONGC'sRigs(for25wells) - 10.19 10.19 - 33.12 33.12- UsingONGCsRigs(78wells) - 37.57 37.57 - 100.10 100.10- Using Contract Rigs (for drilling 113 wells) 28.87 39.39 68.26 50.54 - 50.54
Subtotal (A) 28.87 87.15 116.02 50.54 133.22 183.76
B. Workover ServIces a- Using ONGC5 Own Rigs (for 63 wells)- Using Contract Rigs (for 82 wells)
Subtotal (B)
C. Equipment & Materials• Casing- Drill Bits- Well Head Completion Equipment- Casing Acessones- Kelly & Kelly Cocks- Choke & Kill Mandold- Cement- Mud & Chemicals- Oil & Lubricants- Other Chemicals- Other Materials- Production Tubing- Down Hole Completion Equipment- Handling & Fishing Tools- Drill Pipes- Drill Collars- Down Hole Motors- Wireline Equipment- Well Stimulation Equipment- Workover Rig Pumps- Productin Logging Equipment- Reservoir Monitoring Equipment• Pipelines- Valves- Pipe Coating Materials- Laboratory Equipment b/- Training Equipment
Subtotal (C)
0. Surface Processing Facilities- OIl&GasGathedngStations 0.57 10.93 11.50 4.76 13.96 18.72- CrudeOilStabllizattonUnit 4.66 11.56 16.22 20.29 - 20.29- Condensate Fractionation UnIt 3.58 9,79 13.37 -- Dew Point Deprsn & Gas Dehdrtn UnIt 2.33 8.10 10.43 - - -- Centrifugal Off-Gas Compressor 6.14 - 6.14 - - -
Subtotal (D) 17.28 40.38 57.66 25.05 13.96 39.01
22
Appendix 4. Page 2
PROJECT COSTS (ORIGINAL VERSUS ACTUAL)($ million)
Appraisal Estimate Actual CostItem Foreign Local Total Foreign Local Total
Exchange Currency Cost Exchange Currency Cost
E. Utility & Offslte Facilities- Cooling Water and Instrument Air System 0.43 21.98 22.41 16.72 31.08 47.80- Crude Oil and NGL Storage 0.17 4.37 4.54 - - -- LPG Storage 1.71 5.07 6.78 - - -- Cogeneration Power Plant 5.59 6.62 12.21 29.07 - 29.07- Water & Gas Injection Plants 0.29 6.28 6.57 - - -• Formation Water Treatment Plant - 0.84 0.84 - - -- Water Injection Pumps 5.18 - 5.18 - - -- Gas Injection Compressors 4.75 - 4.75 - - -
Subtotai(E) 18.12 45.16 63.28 45.79 31.08 76.87
Safety and Environmental Control Equipment 1.00 2.67 3.67 0.33 0.27 0.60Engineering Services - 6.77 6.77 - 5.19 5.19Consultancy Services 1.00 0.08 1.08 0.08 - 0.08Training 1.50 0.14 1.64 0.88 0.28 1.16Duties & Taxes - 48.55 48.55 - 27.59 27.59
Total Base Cost 240.80 313.60 554.40 222.24 286.26 508.50
Physical ContingencyPrice EscalationInterest During Construction- Bank Loan- Others
Total
19.20 26.63 45.83
23.40 48.77 72.17
30.00 - 30.00
7.60 - 7.60
321.00 389.00 710.00
8.40 - 8.40
17.03 - 17.03
247.67 286.26 533.93
a Drilling services for 216 wells and workover services for 125 wells.Laboratory equipment for the Institute of Oil and Gas Production Technology.Excludes expenditures already incurred.
23
ANNUAL AVERAGE RATE OF EXCHANGEBETWEEN THE RUPEE AND US DOLLAR
aFISCAL YEAR Rs per $
1991 19.50
1992
26.00
1993
31.29
1994
31.32
1995
31.46
1996
33.77
1997
35.66
1998 39.50
a The annual average exchange rates based onactual transactions by Oil and Natural GasCorporation.
Appendix 5
IIIIIIIIHIHhIIIIIIIIIIIHhIIIIIIIiuii.iiuuunIHhIIIuI!!i!!!!'IIIIIIIHIHIIIIHhIIIIHI!!II 1111111i...iiuh,u....IIuhI.,.fluuhIIuHhlII!IIHIr'!J!! i!!iL
LIST OF MAJOR CONTRACTS WORTH $1 MILLION AND ABOVE
EA Contract No. PCss
Contract Description
Mode of NIT Date of Bid Submission of Date of Bank Date of Bank Receipt ofNo. Procurement Date Opening BER by EA Approval Cont. Awd. Signed Contract
ICB1C81GBICB1GBICBICBICBICBICBICBICBGB
1GBICBICBICBICBICBICBICBGB
1GB1GB1GB1GB1GBlOB1GBICB1GB1GB
C-105C-i 15C-116C-015ESSAR GUJARAT/C-1 18ESSAR GUJARAT/C-1 18SAiPEMABAN/C-1 17SAIPEMABAN/C-1 17BTELJC-1 19BTEUC-119C-132HYDRA/C-030OCTUC-033OCTUC-033OMSCO/C-042SITE/C-063C-158ANK/OBG/CPF-ll102(20A)194ANK/OBG/CPF-lI/02(20A94TRIVENI/C-039ANK/OBf3/CPF-II/04(20A)93-94ANKJOBG/CPF-It/04(20A)93-94C-177C-176C-178ANK/OBG/CPF-ll/03(20A)94ANK/OBG/CPF-1 1/01 (20A)f94DALMINE/C-310ANK/OBG/CPF/10(334MSUC-330OCTL/C-326ANK/MM/GFDP/EBG/1 17/HES/C-358
0005 Well Head and Superstructure0022 Casing Pipes0023 Casing Pipes0026 Production Tubings and Pup Joints0034 Charter Hire for Drilling Rigs0034 Charter Hire for Drilling Rigs0035 Charter Hire for Drilling Rigs0035 Charter Hire for Drilling Rigs0038 Charter Hire for Drilling Rigs0038 Charter Hire for Drilling Rigs0052 Casing Pipes0059 Truck Mounted Nonfired Ln Pumping Unit0060 Joint Production Tubings, Crossovers and Pup Joint0060 Joint Production Tubings, Crossovers and Pup Joint0080 Drill Pipes0111 Downhole Completion Equipment for 9 5/8w Casings0128 Casing Pipes0145 Crude Stabilization Unit (Supply and Installation)0145 Crude Stabilization Unit (Supply and Installation)0157 Charter Hire of Two Work Over Rigs0159 Utilities and Offsites0159 Utilities and Offsites0163 Casing Pipes of Various Sizes0164 Casing Pipes of Various Sizes0165 Casing Pipes of Various Sizes0167 Combined Cycle Power Plant0178 Group Gathering Station0204 Supply of Une Pipes, Size 3 1/20237 Supply of Water Injection Pump0239 Supply of Line Pipes. Size 3 1/2"0240 Supply of Eue Tubings, Crossovers and Pup Joints0287 Open Hole Logging Unit and Down Hole Tools
21/11/9119/11/9 119/11/9116/11/9 122/11/9122/11/9122/11/9122/11/9122/11/9122/11/9103/11/92
09/11/9209/11/9215/11/9328/12/9208/06/9323/02/9323/02/9307/02/92
Mar-93Mar-93
09/11/9309/11/9309/11/9325/02/93
05/02/9205/01/9205/01/9215/01/9227/01/9227/01/9222/1 1/9 122111/9122111/9122/11/9103/11/9215/04/9211/01/9311/01/9321/01/9321/04/9317/08/9316/06/9316/06/9305/05/9216/07/9316/07/9317/01/9417/01/9417/01/9409/06/93
05/06/9207/10/9207/10/9228/04/9215/04/9215/04/9227/01/9427/01/9427/01/9427/01/9411/01/93
12/03/9312/03/9310/06/9322/10/9308/10/9320/12/9320/12/9326/04/9316/01/9416/01/9408/04/9708/04/9708/04/9712/11/93
08/07/9227/10/9227/10/9227/10/9224/08/9224/08/9225/08/9225/08/9224/08/9224/08/9226/03/9323/03/9316/04/9316/04/9319/07/9302/11/9319/11/9319/01/9419/01/9409/07/9303/02/9403/02/9411/05/9411/05/9411/05/9410/05/9422/04/9401/12/9425/07/9429/05/9511/04/9521/12/95
10/09/9228/10/9228/10/9208/11/9225/01/9325/01/9322/01/9322/01/9318/02/9318/02/9308/04/9321/05/9325/05/9325/05/9326/07/9308/12/9321/12/9311/04/9411/04/9409/03/9416/05/9416/05/9408/06/9417/06/9417/06/9404/07/9404/07/9409/01/9519/08/9416/06/9516/06/9527/02/96
19/10/9209/11/9209/11/9210/11/9210/02/9310/02/9310/02/9310/02/9317/03/9317/03/9323/04/9303/06/9303/06/9303/06/9310/08/9317/12/9304/02/9422/04/9422/04/9406/06/9424/05/9424/05/9418/07/9418/07/9418/07/9420/07/9401/08/9425/01/9513/06/9527/06/9527/06/9519/03/96
22/03/94 01/08/94 16/11/94
Mar-92 20/06/9402/12/94 21/02/95 23/05/9528/08/94 05/09/94 11/03/9502/12/94 03/04/95 21/11/95
C-n
D•0
BER = Bid Evaluation Report EA = Executing Agency; ICB International Competitive Bidding; NIT = Notice Inviting Tender; P055 Procurement Contract Summary Sheet. CD
>(
•00)
CoCD
0
050505454535315
02020
004
242437
02
22
324
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CDN.)
LIST OF MAJOR CONTRACTS WORTH $1 MILLION AND ABOVE
EA Contract No. PCSS
Supplier/Contractor
Contract Date of Date of CompletionNo. Amount ($) Start/Supply Completion Period (months)
C-105C-i 15C-i 16C-015ESSAR GUJARAT/C-1 18ESSAR GUJARAT/C-1 18SAIPEMABAN/C-1 17SA1PEMABAN/C-1 17BTELJC-1 19BTELIC-119
C-132HYDR.AJCO30
OCTtJC-033OCrL/C-033OMSCOIC-042S1TE/C-063C-158ANK/OBG/CPF-1i/02(20A)/94ANK/OBGICPF.1l/02(20A)/94TRIVENI/C-039ANK/OBG/CPF-W04(20A)93-94ANK/OBG/CPF-Ii/04(20A)93-94C-177C-176C-i 78ANK/OBG/CPF-li/03(20A)94ANK/OBG/CPF-Ii1 (20A)/94DALMINEIC-310ANKfOBG/CPF/1O(33)/4MS(JC-330OCTL/C-326ANK/MM/GFDP/EBG/1 I7IHES/C-358
0005 Chi Flew Tech & Dev Corp0022 Soconord Corp0023 Voest Alpine0026 Mitsubishi Corp0034 Essar Gujarat0034 Essar Gujarat0035 Saipem Aban0035 Saipem Aban0038 Birla Tech Explo Ltd0038 Birla Tech Explo Ltd0052 Oil & Country Tubular Ltd0059 Hydra Rig Inc0060 Oil & Country Tubular Ltd0060 Oil & Country Tubular Ltd0080 Omsco industries0111 Site Oil Tools Inc0128 Tubexpport System AG.0145 Bharat Heavy Plates & Vessel0145 Bharat Heavy Plates & Vessel0157 Triveni Oilfield Services Ltd0159 Lloyds Steel Industries Ltd0159 Lloyds Steel Industries Ltd0163 Voest Alpine Stanhirohr0164 Thyssen Stahiunion GMBH0165 Soconord Octg SA0167 Bharat Heavy Electricals Ltd.0178 Lloyds Steel Industries Ltd0204 Dalmine Tubi Industrial Sri0237 Ebara Corporation0239 Maharashtra Seamless Ltd.0240 Oil Country Tubular Ltd.0287 Halliburton Energy Services
Total
1,010,3791,147,5161,169,5631,312,6666,380,6966,692,545
13,066,77011014,2402,607,6777,335,616
10,737,8861,037,0225,311,7931,832,6191,197,9011,190,6131,184,456
11,827,0239,098,0744,210,6033,476.2166,435,3761,296,5701,392,4462,060,770
26,837,4522,198,7161,749,5811,429.9822,402,7251,351,1142,695.124
152,691,730
11/04/94 11/04/94
Feb-93 Mar-93
Feb-93 Mar-93
11/05/93 11/05/93
Jan-93 Feb-97
Jan-93 Feb-97
Jan-93 Jun-97
Jan-93 Jun-97
Jan-93 May-97
Jan-93 May-97
20/08/93 31/10/94
20/06/94 20/06/94
Oct-93 Jun-95
Oct-93 Jun-95
23/12/95 23/12/95
20/06/94 20/06/94
Apr-94 20/07/94
20/01/94 19/01/96
20/01/94 19/01/96Feb-94 Mar-97
08/02/94 Under progress08/02/94 Under progress
28/10/94 28/10/94
Sep-94 Nov-94
29/10/94 10/12/94
17/05/94 16/03/96
16/06/95 20/09/95
Jun-95 Aug-95
Jul-95 Nov-95
Dec-95 16/12/95
Jul-97 12/12/98
8
2.66
4
1.33
8
1.33
4
1.33
4
0.33
111
35.98
27
Appendix 8
STATUS OF INTERNATIONAL TRAINING OF ONGC STAFF
ONGC Group Course Context Training Organization
Operations Business Group Horizontal Well Analysis & OGCI, USAHorizontal Well Completions
Applied Reservoir OGCI, USAImproved Oil Recovery Unit-I
Reservoir Monitoring & OGCI. USAProduction Log EvaluationImproved Oil Recovery Unit-I
Reservoir Monitoring & OGCI. USAProduction Operations
Rod Pumping & Gas Lift OGCI, USAOptimization
Corrosion Control I Oil Field OGCI, USAWater TechnologySurface Production Operations
Field Processing & PTR, AustraliaTreatment of HeavyNiscousOil/Emulsions
Technical Business Group Operation & Maintenance of CEGELEC, FranceMechanical Equipment usedin Oil Industry
Operations & Maintenance of ENSEPM, FranceElectrical/InstrumentationEquipment used in Oil Industry
Process Modeling & ENSEPM, FranceComputer Simulation
Exploration Business Group Reservoir Development of IHRDC, NetherlandsVolatile Oil Field
2-D Simulator for Engineers IHRDC, Netherlands
Exploration & Exploitation IHRDC, NetherlandsManagement of Field Similarto Gandhar
Cased Hole Production IHRDC. NetherlandsLogging & Cement Evaluation
General Management Bidding in International IHRDC, NetherlandsMarket PortfolIo
Study Tour of Light Oil ALCONSULT. CanadaFields Similar to Gandhar
Project FInance ILl, Washington
International Loan Negotiations ILl, Washington
Total
No. of Participants Person-Months
6 2.00
7 3.50
6 2.00
6 3.00
6 2.00
9 3.00
8 2.66
7 2.33
8 2.66
3
0.20
5
1.66
4
1.33
8
2.66
D. ReservoIr Development Program and Studies
4. Carry out a reservoir performance evaluation of the LA, ScheduleGandhar field annually to update the Borrower's 6.5(a)reservoir development program for the Gandhar field;and review annually the results with the Bank; the firstsuch review to be undertaken not later than 31December 1992.
28
Appendix 9, page 1
STATUS OF COMPLIANCE WITH MAJOR LOAN COVENANTS
Covenant
Reference In
RemarksLoan
Documents
A. Training
Submit a detailed training program for personnel to be LA, Schedule 111 persons were trainedtrained overseas and the courses of training to be 6.2(c) internationally in various courses.conducted by the trainers for personnel in India prior to Within India, in-house and out-housetheir implementation. courses are being continuously held.
B. Safety and Environmental Aspects
2. Implementation relevant occupational health and safety LA, Schedule Under implementation. Necessary kitsprograms for the operation of the Gandhar field. 6.3(b) and uniforms are being provided to
the field personnel. The safety andenvironment protection program isunder implementation.
C. Corporate Planning and Strategy
Prepare a plan by 31 March 1992 in relation to:
a) gradually disengage itself from functions orservices which are suitable for private sectorcompanies to undertake;
b) examine to strengthen the commercial operationsof the Borrower with a view to give greaterautonomy to the Borrower's regional centers; and
c) set up a cell within the Borrower to attend tomatters related to private sector involvement inthe development of oil and gas fields belongingto the Borrower.
LA, Schedule The plan was submitted to the Bank in6.4(B) May 1992. A study for restructuring of
ONGC has been undertaken. ONGCis moving to the concept of assettmanagement by a multidisciplinaryteam. The pilot project is Neelam inBombay High with an assett managerheading the project. ONGC has alsoupgraded the head of the WesternRegion to the level of executivedirector with a high level of financialautonomy after budget approval. Allresearch institutes have been placedunder one umbrella with integratedservices and are headed by anexecutive director.
Reservoir performance evaluation isbeing carried out annually to updatethe reservoir development program.Review of the performanceundertaken with the Bank during thevisit of the Mission in February 1996.A staff consultant was engaged by theBank to review the performanceevaluation reports submitted byONGCIIRS. The final report wassubmitted to the Bank/ONGC In May1997. ONGC/IRS Is taking steps onsome of the recommendations.
5. Update its estimates of oil & gas reserves of Gandhar LA, Schedule The estimates of oil and gas reservesfield and review the updated estimates with the Bank 6.5(B) are updated annually in April everyannually during the course of implementation of the year by IRS and submitted to theProject. Bank. Bank had engaged a
29
Appendix 9, page 2
consultant to review Gandhar fieldreserves.
E. Project Benefit Monitoring and Evaluation
6. Prepare and submit on an annual basis for the first five LA, Schedule Not yet applicable. However, sinceyears after the completion of the Project a Project 6.6 the gas fractionation unit is not beingbenefit monitoring and evaluation report covering the set up by ONGC, there will be noactuals of the oil, gas, LPG and NGL production against production of LPG & NGL. Theplanned targets for the Project. benefits will be in the form of oil and
gas only.F. Financial Matters
7. The Borrower shall maintain: LA,Schedule Complied for FYi 997.6.7(a)
a. An annual return of its average net fixed assets of notless than 15 percent;
b. A debt service ratio of not less than 1.5:1;and
c. A debt/equity ratio of not more than 60:40
G. Others
a. Annual rate of return on averagenet fixed assets: 15.75%.
b. Debt-service ratio: 2.11:1
c. Debt-equity ratio: 0.5 (33.67)Funds from internal sources tocapital expenditures: 82%
8. Separate accounts of the Project and submission of LA, Section Complied with.audited accounts and financial statements to the Bank. 4.07
9. Submission of quarterly reports on the execution of the LA, Schedule Complied with.Project and on the operation and management of the 4.06(b)Project facilities.
10. Implementation of Recommendation under TA 1597- LA, Schedule Generally complied with.IND: Safety and Environment Management of ONGC's 6.9Activities.
11. The Guarantor shall ensure that the Guarantor's Gas GA, Section Gas available from the fields hasLinkage Committee will take all necessary action for the 2.04(a) been allocated by the Gas Linkageexpeditious development of the gas markets and to Committee (GLC) and the GLC isensure the efficient use of gas and the orderly matching ensuring the efficient use of gas.of gas supply and demand.
12. The Guarantor shall continue to periodically review theexisting oil pricing system and to adjust the overallprices of oil products from time to time to (a) achieve fullcost recovery from end consumers and to reflectinternational prices at the consumer level; (b) enablethe public operating entities to operate on a soundfinancial basis; and (c) mobilize adequate resourcesfrom the oil sector.
GA, Section The decision for dismantling the2.07 administered pricing mechanism, in a
phased manner, has been taken.Prices of a number of petroleumproducts have been deregulated.Pricing policy for crude oil fromexisting fields as well as from theother fields under New Exploration &Licensing Policy (NELP) has beenannounced.
13. In the context of the recommendations of its Gas GA, SectionPricing Committee, the Guarantor shall continue to aim 2.08for full fuel oil parity and provide for an adequate returnto procedures.
The Government has revised the gasprices through its orders datedSeptember 18 & 30, 1997. Theconsumer price of gas has beenlinked to the international prices of abasket of fuel oils. This linkageprogressively Increases from 55% inFYI 998 to 65% in FYi 999 and 75% in
3')
14. In order to bridge the resource gap and accelerate GA, Sectiondevelopment of indigenous oil and gas resources to 2.09meet the energy needs of the country, as provided inthe statement dated 26 February 1991 of Assurances ofthe Guarantor on Policies and Strategies for the EnergySector submitted to the Bank under the SpecialAssistance Project, the Guarantor shall:
a. continue its program of regular exploration offeringsin the future;
b. base the price of crude oil produced by private sectorcompanies on the international price of a basket ofreference crudes;
c. ensure that for private sector companies the pricingformula utilized for associated gas shall be on a costplus basis, while for non-associated gas the priceshall be related to the international price of fuel oil;and that the purchase price of gas from privatesector companies for both associated and non-associated gas shall be equal to but not exceed theprice paid to the Guarantor's producer national oilcompanies.
Appendix 9, page 3
FY2000. At the end of this period thematter will be reviewed with theintention of moving toward 100%parity with the prices of fuel oil overFY2001 and FY2002.
Since 1991, the Government hasbeen offering exploration acreages ona regular basis to the investors. Over150 blocks were offered in six roundssince 1991. The Government hasalso announced the NELP with a viewto attract greater private investmentsin the exploration sector.
This has been complied with asprivate companies under theproduction-sharing arrangement arebeing paid at international prices andcontracts awarded for explorationblocks provide for payment of crudepurchased by the Government atinternational prices. Under the NELP,companies have been given fullfreedom to market their production ofoil and gas in domestic markets.
This has been complied with andexceeded. In fact the Joint VentureExploration Programme-i 995 roundand under NELP companies are freeto market their gas in domesticmarkets.
31
Appendix 10
POLICY ISSUES ON THE PRICING MECHANISM IN THE PETROLEUM SECTOR
1. The liberalization process for the petroleum sector since 1995 has beenprogressing fairly smoothly. The policy is geared to reduce import duties on crude andpetroleum products in a phased manner so that a rational structure is arrived at by FY2003. It isintended that the import duty on crude be brought to a nominal level with a slightly higher dutyon the import of petroleum products to encourage setting up of new refineries in India.
2. Some of the petroleum products like naphtha, furnace oil (FO), LiquefiedPetroleum Gas (LPG), and bitumen have already been decontrolled and can be imported andmarketed by the private sector. Crude oil for private sector refineries can be imported directly bythe refinery company. There is also a program to reduce subsidies on LPG for domestic useand kerosene in a phased manner.
3. As far as natural gas is concerned, the current policy is to bring its domestic pricein line with the price of imported EQ. To accomplish this, the price of gas is revised everyquarter to bring it in line with a percentage of the price of a basket of FOs. The percentage hasbeen set as 55 for FYi 998, 65 for FYi 999 and 75 for FY2000. In 2000, the position will bereviewed to bring the price of gas on parity with FO during FY2001 and EY2002.
4. Some of the discovered oil and gas fields have been awarded to the privatesector in a joint venture with Oil and Natural Gas Corporation (ONGC). For the joint venture gasproducers in India, there is already a negotiated producer price that is being presently paid byGas Authority of India Ltd. (GAIL) as the purchase of gas. GAIL is compensated for the higherprice being paid to joint ventures through a gas pool account. This account is built up through adifference in producer price and the consumer price.
5. In India petroleum product prices have been administered by the Government ofIndia through a mechanism of an oil pool account administered by the Oil CoordinationCommittee. With the advent of liberalization, a restructuring group was set up by Ministry ofPetroleum and Natural Gas (MPNG). Popularly known as the 'R' group, it recommended agradual dismantling of the administered pricing mechanism and movement to a market-determined pricing mechanism. The recommendation of the 'R' group have been partlyimplemented by the Government.
32
Appendix 11
PROJECTED AND ACTUAL DISBURSEMENTS OF LOAN PROCEEDS
Calendar Cummulative DisbursementsYear Projected a
Actual
1992 4.08 0.281993 23.28 26.811994 48.38 79.371995 119.38 145.601996 158.68 179.811997 168.38 198.56
Projections as made in the annual LFIS.
Cummulative Disbursement Diagram
210.00
180.00
150.00
120.000E
90.00
60.00
30.00
0.00
—+—Proected a
UActuaI
1992 1993 1994 1995 1996 1997
..I I CIC. I I U UW I ..................
33
Appendix 12
FINANCIAL INTERNAL RATE OF RETURN OF THE PROJECT(Rs million)
CapitalCost
280.14588.91709.93530.06964.30
1,099.601,181.643,614.462,354.303,025.091,350.05571.00255.10
FiscalYear
1987198819891990199119921993199419951996
1997
19981999200020012002200320042005200620072008200920102011
OperatingCost
29.0074.60
130.99144.86414.60467.37504.61850.48
1,141.101,395.381,584.491,803.402,655.262,676.992,570.312,473.762,281.122,112.281,915.741,723.721,542.381,418.481,310.801,214.441,148.15
TotalCost
309.14663.51840.92674.92
1,378.901,566.971,686.254,464.94
3,495.404,420.472,934.542,374.402,910.362,676.992,570.312,473.762,281.122,112.281,915.741,723.721,542.381,418.481,310.801,214.441,148.15
TotalRevenue
9.78133.79371.07495.81
1,348.831,583.651,658.462,779.743,747.224,482.334,817.685,229.807,280.407,021.906,487.006,040.205,357.004,723.904,140.903,537.902,979.002,594.402,263.801,971.301,769.00
NetCash Flow
(299.36)(529.72)(469.85)(179.11)(30.07)16.68(27.79)
(1,685.20)251.8261.86
1,883.142,855.404,370.044,344.913,916.693,566.443,075.882,611.622,225.161,814.181,436.621,175.92953.00756.86620.85
(471.05)(744.22)(589.38)(200.60)(30.07)14.89(22.16)
(1,199.49)
160.0435.10
954.061,291.641,764.991,566.821,261.071,025.27789.50598.51455.31331.44234.34171.27123.9387.8864.36
Total 16,524.58 33,584.31 50,108.89 82,824.86 32,71597
7,673.44
Financial Internal Rate of Return (post tax): 25.83%
NPV = net present value
34 Appendix 13, page 1
ASSUMPTIONS USED FOR CALCULATION OF THE FIRR & EIRR
A. Major Assumptions Used in Financial Reevaluation of the Project
The financial reevaluation of the Project is carried out on an incremental basis.
2. The economic life of the Project is assumed to be 16 years from FY1996 toFY2O1 1 as assumed at appraisal. To make an equal footing with appraisal, the capitalexpenditures as well as revenues incurred since FY1987 were also taken into account in thefinancial reevaluation, as the exploratory wells drilled earlier (before appraisal) producedhydrocarbon from FYi 987 and the Project started yielding revenue from the same fiscal year.
3. All prices and costs are expressed in FYi 998 constant values.
4. The capital cost for FY1987 to FY1990 has been taken as per the originalappraisal note of 1991. The capital cost includes the costs of exploratory and developmentdrilling, pipelines , surface facilities, utilities and offsites, and environment management.
5. The revenues for FYi 987 to 1990 have been incorporated in the calculation ofthe financial internal rate of return (FIRR) as was done at appraisal.
6. Only oil and gas are considered to compute the revenue based on prices underthe administrative price mechanism in accordance with the Government policy.
7. Sales of Liquefied Petroleum Gas (LPG) are not included in the calculation ofrevenue for reasons mentioned in the main text.
8. Operating costs include repair and maintenance costs, well maintenance, stafftransportation cost, consumables, cost for power, and other operating expenses. Operatingcosts for Phase-Il is apportioned based on actual well completions.
9. Working capital costs are included under operating cost.
10. The rate for oil and gas has been taken net of royalty and other duties.
11. The exchange rates used are indicated in Appendix 5.
12. The corporate tax is assumed at 35 percent.
B. Major Assumptions Used In Economic Reevaluation of the Project
13. The economic reevaluation of the Project is on an incremental basis, taking intoaccount actual production records until FYi 998 and the projection of production based on theavailable data and reserve situation of the Gandhar field.
14. The economic costs include (i) cost of exploratory and development drilling,pipeline, surface facilities, utilities and offsites, operation and maintenance (O&M) cost forproduction of oil and gas at the field and O&M costs of all other production.
35 Appendix 13, page 2
15. Import duties and royalty have been excluded from the Project cost.
16. The economic life of the Project is assumed to be 16 years from FYi 996.
17. Average actual exchange rates are used until FY1998 and thereafter theexchange rate assumed is $1.00 = Rs.43.0O based on prevailing conversion rate.
18. No depletion premium is considered as the oil price is assumed to remain stable.
19. A standard conversion factor at 0.8 as used at appraisal has been applied to thelocal currency cost.
20. A social discount factor of 12 percent has been used.
21. The crude oil price for economic analysis is based on actual import prices untilFYi 998 and is assumed at $18 a barrel from FYi 999 onward, while it was assumed at $25 abarrel throughout the Project life at appraisal.
22. The exchange rate at present is $1.00 = Rs43.00, while it was $1.00 = Rs26.0Oat appraisal.
36
Appendix 14
ECONOMIC INTERNAL RATE OF RETURN OF THE PROJECT(Rs million)
Fiscal
Capital
Operating
Revenue
Net
NPV@Year
Cost
Cost
Flow
12%
1987198819891990199119921993199419951996199719981999200020012002200320042005200620072008200920102011
291.20617.29775.71596.34
1,036.841,161.551,247.494,157.122,569.143,297.251,572.75
685.20306.10
36.2593.25
163.74181.08242.63282.71390.35774.93826.18
1,040.951,062.45
987.631,028.631,038.751,039.381,038.751,041.381,077.751,043.381,043.381,043.381,043.381,043.381,043.381,043.38
9.78133.79369.35495.81
2,908.214,639.784,962.747,079.158,167.95
12,992.7314,241.6215,513.4522,136.0721,350.2919,723.8918,365.5116,288.3514,363.4712,590.8810,757.389,057.887,888.346,883.265,993.925,378.69
(317.67)(576.75)(570.10)(281.60)
1,628.743,195.523,324.902,147.104,772.648,654.53
11,606.4213,840.6320,801.3520,311.5418,684.5217,326.7615,246.9813,285.7211,547.519,714.018,014.516,844.975,839.894,950.554,335.32
(499.86)(810.29)(715.13)(315.39)
1,628.742,853.142,650.591,528.273,033.104,910.815,880.186,260.808,401.317,324.546,015.914,981.033,913.523,044.742,362.851,774.711,307.34
996.93759.42574.79449.43
Total
18,313.98
19,650.38
242,292.31
204,327.95 68,311.49
Economic Internal Rate of Return: 70.56%
NPV = net present value
37
Appendix 15
OIL AND GAS PRODUCTION PROJECTIONS DURING THE PROJECT'S LIFE(Actuals up to FYi 998)
Fiscal Phase I
Phase II
Phase I & II
Year
Oil
Gas
Oil Gas Oil
Gas(MMT)
(MMSCM)
(MMT) (MMSCM) (MMT)
(MMSCM)
26223825927823825018214516115714914312711299846958444239
1987 a198819891990199119921993199419951996199719981999200020012002200320042005200620072008200920102011
0.5630.44 50.4900.4240.4580.3600.2850.2280.2630.2300.2020.1660.1330.1150.0900.0720.0630.0550.0500.0400.030
0.4490.5140.4460.7281.0201.1721.2251.3071.4951.4151.2451.1100.9740.8460.7440.6470.5600.4970.4380.3930.357
238368386569921
1,2721,2851,5242,1392,0901,9931,9051,7001,5121,3231,119
927798692591526
1.1120.9590.9361.1421.4781.5321.5101.5351.7581.6451.4471.2761.1070.9610.8340.7190.6230.5520.4880.4330.387
500606645847
1,1591,5221,4671,6692,3002,2472, 1422,0481,8271,6241,4221,203
996856736633565
Total
4.762
3,136
17.582
23,878
22.434
27,014
MMSCM = million standard cubic meter, MMT = million tons.a Although the benefits accrued from 1987 to 1990 were considered during appraisal,
production figures were not available
38 Appendix 16, page 1
TA COMPLETION REPORT ONSAFETY AND ENVIRONMENTAL MANAGEMENT OF ONGC'S ACTIVITIES
flivisinn INRMTA NO. & NAME: TA AMOUNT APPROVED: SOURCE:1597-IND: Safety & Environmental $890,000 The BankManagement of ONGC's Activities
REVISED AMOUNT:_____________________________________ $890,000 ___________________EXECUTING AGENCY: TA AMOUNT UNDISB: TA AMOUNTOil & Natural Gas Corporation (ONGC) $2,842.54 UTILIZED:___________________________________ ________________________ $887,157.46DATE: APPROVAL SIGNING: FIELD: CLOSING:2 January 1992 2 July 1992 7 March 1994 ORIGINAL: Aug.
1994_______________________________ ____________________ ACTUAL: Nov. 1994
A. TA Description
1. The nature of oil and gas drilling operations are hazardous to the persons involvedand the environment. To equip Oil and Natural Gas Corporation (ONGC) with the ability to carryout these activities, the Bank attached the technical assistance (TA) for safety and environmentalmanagement of ONGC's activities to the Project. Gandhar field development is a major projectundertaken by ONGC in Gujarat on-shore.
B. TA Objective and Scope
2. The objective of the TA was to ensure that ONGC is equipped with the ability tohandle the safety and environmental measures associated with oil and gas production andhandling activities. The scope of work was to (i) prepare safety and maintenance procedures andmanuals for proper inspection and maintenance of submarine pipelines and platforms in westernoff-shore; (ii) train personnel in safety and disaster management; (iii) carry out hazard and riskanalysis of the operation at the Hazira complex and the Gandhar field; (iv) recycle treatedwastewater from the Gandhar field for agricultural use; and (v) improve mobile monitoring of airquality in different regions. ONGC on their part pointed out areas of particular interest: (I)development of ONGC's environmental management system; (ii) improvement of air qualitymonitoring system; (iii) disaster management based on integrated risk analysis; (iv) preparation ofpipelines operation, monitoring, and maintenance manual, and development of inspection andrepairing requirements procedures; and (iv) industrial wastewater management in the area ofAnkleshwar.
C. TA Inputs Evaluation
3. The design and formulation of the TA recognized the need for preparation ofprocedures for safe operation and maintenance of submarine pipelines and production platformsfor which a pipeline maintenance engineer and a safety officer were required to give inputs. In thecase of disaster management, an expert in this discipline in the oil and gas sector having dealt withblowouts was to be utilized. For the Mumbai High and Gandhar fields, drilling safety expert andprocess safety officer with major oil and gas companies were to be used. A hazard and riskanalyst with experience in an international exploration and production company or refining
39 Appendix 16, page 2
company was to identify hazards and risks. In the case of wastewater recycling, the expert wasrequired to suggest means of treating the wastewater to make it usable for agricultural purposes.The overall TA design and formulation was satisfactory as it took care of all aspects of safety andthe environmental needs of ONGC's drilling operations both on-shore and off-shore. The inputenvisaged utilization of 29.5 person-months of experts. This is considered reasonable for anelaborate exercise of such magnitude. The consultant selected by the Bank for this was a Swissfirm in association with another Swiss firm.
D. TA Outputs Evaluation
4. The study developed into an audit of the guidelines and regulations on safety andenvironment aspects of ONGC. Whereas ONGC was seen as possessing all the relevantdocumentation on safety and environment, the awareness of these among the staff was quitepoor. It was consultant's view that ONGC must recognize that it relates to the internationalpetroleum industry and should adopt the practices followed worldwide in this industry. Theconsultant observed that ONGC personnel were not fully familiar with safety and environmentalpractices. ONGC was also considered to be reluctant to provide information and documentation.There was considerable loss of time in getting inputs from ONGC. There were not enoughdiscussions, but whenever discussions were possible the information was highly valuable.Although ONGC production facilities were found to be built to international standards, theconsultant observed many equipment failures and operational defects. The consultantrecommended that ONGC change its attitude to safety and the environment.
5. The consultant noted that ONGC is a highly security-minded organization and itwas difficult to access information required by the consultant. Awareness and access todocumentation is a serious problem within ONGC. The consultant recommended participation ofpersonnel in round-table discussions and need for teamwork. It was felt that although installationsare of international standards, operability and maintenance left much to be desired. There weretraining programs by the consultant on disaster management, air quality control, monitoringpipeline inspection, maintenance/repair, and drilling safety. ONGC put into practice many of therecommendations and took remedial actions. A manual on Inspection and ReportingRequirements for Pipelines was prepared jointly by the ONGC team and the consultant for and onbehalf of consultants for the Mumbai Regional Business Centre. The consultant's report containsmany recommendations in different areas, which are of varying nature and importance. The otherkey output of the consultant was that ONGC should give critical importance to the safety ofpersonnel, operation, and capital investment. It is recommended that all systems and equipmentbe periodically inspected and tested every 2 or 3 years by an external agency and this should bedocumented. There should also be on-site training of ONGC personnel by an outside agency. Itwas also recommended that a computerized archive system, facilities maintenance, and inventorycontrol systems should be introduced and cost controls institutionalized.
E. TA Overall Assessment and Rating
6. The TA can be rated as successful. It provided a serious critical examination ofONGC system and practices and observed serious shortcomings. It was critical but constructive inapproach and gave very practical suggestions, which are already being put into practice byONGC. Success of the TA can be judged by the fact that ONGC not only asked for thepreparation of a pipelines inspection reporting manual but also participated in its preparation. Inaddition they also requested the preparation of operations monitoring, maintenance manuals forpipelines and platforms, which is outside the terms of reference of the TA.
40
Appendix 16, page 3
F. Major Lessons Learned
7. The importance of ONGC achieving effective management of safety &environmental practice was recognized. To achieve this, continuous feedback aboutimplementation of the consultant's recommendations is essential. ONGC should also carry out aninternal audit to obtain evidence of successful implementation.
G. Follow-up Actions and Recommendations
8. One of the follow-up actions emerging out of this TA is the need for preparation oftwo manuals on operation monitoring and maintenance of pipelines and platforms. This should becarried out jointly by ONGC and the consultant outside the scope of the present TA.
9. It was also recommended that a computerized data archives, facilitiesmaintenance, and spares inventory system be developed and established by an ONGC teamjointly with the help of experts. This could be done in a phased manner over a period of 1 to 2years.
41 Appendix 17, page 1
TA COMPLETION REPORT ONEVALUATION OF PETROLEUM EXPLORATION AND DEVELOPMENT RISK CONTRACTS
flivicicn INRMTA NO. & NAME: TA AMOUNT APPROVED: SOURCE:1598-IND: Evaluation of Petroleum $180,000 The BankExploration and Development RiskContracts
REVISED AMOUNT:
EXECUTING AGENCY: TA AMOUNT UNDISB: TA AMOUNT UTILIZED:Ministry of Petroleum & Natural Gas, $42,076.54 $137,923.46Government of IndiaDATE: APPROVAL SIGNING: FIELD: CLOSING:14 November 1991 25 June 1992 January 1993 ORIGINAL: May 1993__________________________________ _______________________ ACTUAL: June 1993
A. TA Description
1. To enhance the capacity of the Ministry of Petroleum and Natural Gas (MPNG) toformulate appropriate terms and conditions for attracting the participation of private sector enterprisesin oil and gas exploration and development in India, the Bank attached the technical assistance (TA)to the loan for development of the Gandhar field, which is a major oil and gas field developmentproject executed by ONGC from 1991 to 1997. The purpose was to enable officers of MPNG to visitthe Bank's developing member countries (DMCs) that have been active in inviting private sectorparticipation in petroleum exploration and development.
B. TA Objective and Scope
2. The objective of TA was to equip MPNG and Oil and Natural Gas Corporation (ONGC)officers with the ability to formulate suitable terms and conditions to attract domestic and internationalprivate sector participation in the rounds of bidding for petroleum exploration and developmentactivities.
3. The scope was to engage the services of a petroleum contracts expert to associatewith a team from MPNG in evaluating the merits and drawbacks of the different contractingarrangements being used by the DMCs to attract the private sector in oil and gas exploration anddevelopment. The scope also envisaged the holding of a seminar to be attended by therepresentatives of the Government of India along with the DMCs and other concerned agencies. Theseminar was to be a forum for exchange of information and experience gained by different countriesin the region in the variety of contracts for oil and gas exploration and development.
C. TA Inputs Evaluation
4. The petroleum contracts expert having expertise in drawing up oil and gas contractsfor exploration was to assist MPNG and ONGC in analyzing the successful awards by the DMCs.The consultant was to provide an outline program for visits to collect data on different types ofcontracts; provide abstracts of various types of international exploration and production, andcompetitive bidding terms in use worldwide and perform an analysis of their merits and drawbacks;assist in framing the program for discussion by petroleum contracts expert and other invitees at the
42 Appendix 17, page 2
seminar; assist in the preparation of a report based on the conclusions of the seminar; and assistMPNG in preparing suitable terms and conditions for attracting wider participation in petroleumexploration and development in India. The input was three person-months of a contract specialist.The consultant chosen for this purpose was a UK consulting firm. The contracts specialist was toaccompany MPNG's officers to visit the DMCs and assist in the consultation process. The contractsspecialist was to organize and conduct a seminar at New Delhi where presentations by the DMCs anda round-table discussion were to be held. The inputs for these activities were considered adequate.
D. TA Outputs Evaluation
5. In January and March 1993 a team from MPNG and ONGC visited the People'sRepublic of China, Indonesia, Malaysia, Philippines and Thailand to familiarize themselves with theprocesses being followed in these countries regarding petroleum exploration and developmentcontracts.
6. Subsequently a seminar was held in New Delhi from 19-21 May 1993. There werefive resource speakers apart from the consultant. The topics discussed included designing aprogressive fiscal regime, accreage promotion, state control and management of operations,nontraditional contracts, natural gas provision in petroleum contracts, and Philippines petroleumexploration contractual system. This was followed by a round-table discussion.
E. TA Overall Assessment and Rating
7. The TA can be said to be highly successful. The team from India along with theconsultant visited five DMC5 and met with Government officers, national oil companies, as well asprivate sector companies; and identified issues that were thoroughly discussed in a well attendedseminar at New Delhi.
F. Major Lessons Learned
8. The lessons learned from the TA were that both the Government and the companiesparticipating in bidding need to be assured of an equitable sharing of economic rent. There was needfor an effective acreage promotion policy, full and free access to data on an ongoing basis, andtransparent fiscal terms. Another significant lesson was the issue of gas pricing, utilization, and theneed for downstream involvement of the private sector in this area.
G. Follow-up Actions and Recommendations
9. It was considered important to disseminate information on India's fiscal terms andconditions to give more opportunity to oil exploration companies to enter hydrocarbon sectors. Theneed to encourage the domestic private sector was identified. Also the need to upgrade data andincrease its availability to the prospective bidders are to be followed up.
