By-Poll (00/15) 00 00 00 00
total(00/225) 105 66 34 02

India must be wary of China's shadow in Vietnam oil deals

By B Raman

Last week, ONGC Videsh Limited (OVL), the subsidiary of ONGC, and the Vietnam Oil and Gas Group PetroVietnam (PV) signed an agreement on cooperation in the field of oil and gas. The framework agreement, which will be in force for three years, was signed in the presence of Prime Minister Manmohan Singh and Vietnamese President Truong Tan Sang, who was on a visit to India.

The agreement aims to promote long-term cooperation in the field of oil and gas, which has been in effect since 1988. It covers the exchange of information on the petroleum industry, exchange of working visits by officials and specialists in various domains of the petroleum industry, new investments, expansion and operations of oil and gas exploration and production including refining, transportation and supply in Vietnam and India, as well as to third countries.

23-year-long association

 India must be wary of Chinas shadow in Vietnam oil deals

Vietnam's President Truong Tan Sang shakes hands with Prime Minister Manmohan Singh. Reuters

The starting-block of the co-operation was the signing of a Production Sharing Contract (PSC) in May 1988 between Hydrocarbon India Ltd (as OVL was then called) and PetroVietnam; under that agreement, the Indian company was allowed to explore gas in Block 06.1, which contributes about 50 percent of Vietnam's gas requirement.

In June 2006, PetroVietnam awarded OVL two more blocks for exploration. These blocks - 127 and 128 in the PhuKanh basin in Vietnam - were awarded to OVL after a regular bidding process.

After Blocks 127 and 128 were awarded to it, OVL noted that the two blocks were among nine offered for global competitive bidding in Vietnam's 2004 Licensing Round. OVL Chairman Subir Raha said that "with the award of Blocks 127 and 128 for offshore exploration in Vietnam, OVL is consolidating its existing presence with 45 percent participating interest in the gas-producing properties of Lan Do and LanTay offshore blocks."

Blocks 127 and 128 are close to the Nam Con Son project, which sources gas from Lan Do and Lan Tay fields discovered by OVL (then Hydrocarbons India Ltd) in 1992 and 1993 respectively.

OVL holds 45 percent participating interest in exploration activities in what is the biggest oil and gas project in Vietnam. The new exploration blocks awarded to OVL have in-place reserves of around 190 million tonnes of oil and oil-equivalent gas.

With oil equity or participating interests in over a dozen countries, including Russia and Sudan, OVL now has operatorship in four offshore exploration blocks. This includes the Farsi block in Iran, Najweet Najeem in Qatar and Blocks 127 and 128 in Vietnam. OVL is also the operator of an onshore exploration block in Libya.

In September 2010, PetroVietnam chairman Dinh La Thang confirmed that his group had planned to submit a proposal to buy stakes in BP's upstream offshore projects. Vietnam and BP are involved in four projects, the Lan Tay-Lan Do gas field in Block 06.1, Nam Con Son pipeline system, Phu My 3 power plant and BP Petco lubricant joint venture.

BP planned to transfer stakes from the first three projects, but not the last one. A BP Vietnam representative said that BP had informed the Vietnamese Government of its intention to explore options for divestment of its upstream assets and was now awaiting approval.

She said: "Our top priority is to continue safe and reliable operations now, during transition and thereafter."

Dinh was quoted by the Vietnamese press as saying that under the agreement signed among the partners of the projects, if one of the partners wanted to withdraw the investment capital or quit the project, it would offer the other partners in the project priority rights to buy stakes. "We have already made a plan to coordinate with the Indian partner [the third partner in those projects] to buy those stakes," he said. Sections of the media quoted India's then Petroleum Secretary S Sundareshan as saying that India's Oil and Natural Gas Corporation (ONGC) and PetroVietnam would jointly bid for BP's assets in Vietnam.

Thus, OVL has been involved in oil and gas exploration in Vietnam since May 1988. In the first block 06.1 awarded in May 1988, OVL had a 45 percent stake, BP had a 35 percent stake and PV a 20 percent stake.

Even though the project has been working successfully, BP decided last year to disinvest its holdings reportedly due to poor security conditions; talks were then on for OVL and PV to buy it.

In the remaining two blocks awarded to OVL in 2006, OVL has a 100 percent stake. In Block 127, no oil or gas has been found and there were reports that OVL was planning to disinvest it to PV. Exploration work is still going on in Block 128 without any discovery of oil or gas so far. In the meanwhile, there have been reports that Essar, another Indian company, was also planning to enter the field of oil and gas exploration in co-operation with PV.

The China factor

China did not formally raise any objection to any of the agreements or projects till last year despite the fact that Indo-Vietnamese co-operation in the field of oil and gas is now 23 years old. On two occasions last year, Chinese officials were reported to have privately informed their US counterparts that China considered the South China Sea also as its "core interest" (in addition to Taiwan and Tibet).

By "core interest", China means an issue on which no compromise on the question of sovereignty is possible. Neither the US nor the ASEAN countries have accepted the new Chinese assertion of the South China Sea as being of core interest to China.

Since the beginning of this year, sections of the Chinese media and non-governmental experts have mounted a campaign to oppose the Vietnamese action in awarding these three blocks to an Indian company for exploration on the ground that these blocks belonged to China. The Chinese contention has been rejected by Vietnam.

The firm adherence of OVL and PV to the contracts of 1988 and 2006 in respect of these blocks has infuriated the Chinese. After the signing of the three-year framework agreement in New Delhi on 12 October, the party-owned Global Times and China Energy News,owned by the party-owned People's Daily, have come out with comments of a jingoistic nature on the subject.

India 'playing with fire'

In an editorial published on 14 October, Global Times wrote: "Both countries (India and Vietnam) clearly know what this means for China. China may consider taking actions to show its stance and prevent more reckless attempts in confronting China in the area. By inking pacts with Vietnam, India probably has deeper considerations in its regional strategy than simply getting barrels of oil and gas. India is willing to fish in the troubled waters of the South China Sea so as to accumulate bargaining chips on other issues with China. There is strong political motivation behind the exploration projects. China's vocal objections may not be heeded. China must take practical and firm actions to make these projects fall through. China should denounce this agreement as illegal. Once India and Vietnam initiate their exploration, China can send non-military forces to disturb their work, and cause dispute or friction to halt the two countries' exploration. In other words, China should let them know that economic profits via such cooperation can hardly match the risk."

In a front-page commentary published on 16 October, the China Energy News said: "India is playing with fire by agreeing to explore for oil with Vietnam in the disputed South China Sea. India's energy strategy is slipping into an extremely dangerous whirlpool. On the question of cooperation with Vietnam, the bottomline for Indian companies is that they must not enter into the disputed waters of the South China Sea. Challenging the core interests of a large, rising country for unknown oil at the bottom of the sea will not only lead to a crushing defeat for the Indian oil company, but will most likely seriously harm India's whole energy security and interrupt its economic development. Indian oil company policy makers should consider the interests of their own country, and turn around at the soonest opportunity and leave the South China Sea."

The Indian company has a 23-year-old association for exploration for oil and gas in the blocks awarded by Vietnam. One of the blocks is already producing gas; exploration has been given up in a second block as there was no oil or gas; in the third, the exploration is still going on.

After having kept quiet for 23 years, sections of the party-owned media in China have mounted a jingoistic campaign against India and Vietnam -more particularly against India- on the ground that the exploration violates China's core interest. Till now, for 23 years, China had never tried to disrupt the Indian exploration through the use of force, but now the Global Times has urged the government to use force to disrupt the Indian exploration.

It is not yet known whether the media comments reflect the views of the Chinese government.The options available to India if the Chinese security forces use force in future to disrupt the exploration have to be carefully examined so that we are not taken by surprise. At the same time, the matter has to be discussed at the diplomatic level with the Chinese authorities.

It is apparent from the campaign that in the community of Chinese strategic analysts, there is an inadequate understanding of the long Indian association with oil and gas exploration with Vietnam. This failing has to be rectified.

B Raman is Additional Secretary (Retired) in the Cabinet Secretariat, Government of India. He is currently Director of the Institute For Topical Studies, Chennai; and Associate of the Chennai Centre for China Studies. Republished with permission from the Chennai Centre for China Studies.

Find latest and upcoming tech gadgets online on Tech2 Gadgets. Get technology news, gadgets reviews & ratings. Popular gadgets including laptop, tablet and mobile specifications, features, prices, comparison.

Updated Date: Dec 20, 2014 06:43:00 IST