Two of India’s biggest state-run oil firms are in talks to buy 20 percent each in a lucrative offshore gas block in Burma as Delhi looks to stem a mass shortfall in electricity.
The two companies, Indian Oil Corporation (IOC) and Oil India Limited (OIL), are giants of the country’s energy sector, with IOC hailed as India’s largest commercial enterprise. They are eyeing stakes in the A-2 block owned by India-based Essar, the Economic Times reported today.
India is estimated to face a 34,000 megawatt (MW) shortfall in electricity alone by 2012. Some 60 percent of the gas imports scheduled for the coming decade are expected to bridge this gap. The country imports 80 to 85 percent of its crude oil and looks set to continue its foray overseas, despite discoveries of oil and gas on the Krishna-Godavari basin in 2002.
Recent regional skirmishes in India’s northeastern states have also led to acute shortage of petroleum products and other resources in the region. Manipur, which borders Burma, is in the midst of a blockade which has resulted in the state government seeking permission from the centre to allow imports of oil, gas and rice from Burma.
“Since ONGC Videsh Ltd (OVL) and GAIL [Gas Authority of India Limited] have made heavy investments in the energy sector of Myanmar [Burma], IOC and OIL do not want to be left out and are perhaps taking this route of entering this sector [in Burma] through Essar, instead of directly dealing with the Myanmar government,” said C Kuppuswamy, from the South Asia Analysis Group.
In this backdrop, acquiring 40 percent of the stake in the A-2 shallow-water block of Essar’s gas assets could come as a respite to the country’s burgeoning energy shortfall. Essar is not owned by the Indian government, and therefore produce from the block is not necessarily channelled to India.
Another firm, the Oil and Natural Gas Corporation (ONGC) which is 75 percent owned by the Indian government, has holdings in the A-2 block, located about 10 kilometers from Wabo in Burma’s western Arakan state.
The estimated value of the deal, which is yet to be finalised, remains undisclosed. That however did not stop both IOC and OIL from registering a 1.1 percent and 0.1 percent rise in their stocks at the Bombay Stock Exchange on Tuesday morning.
“The prospects are bright but it is premature to guess the worth of the A-2 block in terms of oil and gas. India needs more oil and gas for its increasing requirements from whatever source it may be. Of late India has shown a competitive interest in its deals with Myanmar. Since it is only sharing of the stakes of Essar by Indian Oil and Oil India, the implications are minimal except that there is diversification in the agencies and companies involved in the process,” Kuppuswamy added.
But Wong Aung, of the Shwe Gas Movement (SGM), told DVB that India’s goal to import gas from Burma by the end of this year “has been like chasing a mirage for the country; this seems like yet another attempt at it.” The SGM campaigns against the controversial China-backed Shwe pipeline, which is under construction in Burma.
India has been disheartened by Burma’s preferential treatment of China, and the Gas Authority of India Limited (GAIL) pulled out of Burma’s A-7 block in 2007, allegedly owing to these reasons.
While multinational companies often fall under the international radar for flouting basic principles of corporate social responsibility, the state-funded organisations have a comparatively easier way out. This could be one of the reasons behind Essar group’s willingness to sell its stakes to IOC and OIL. On the other hand, the Burmese regime also faces less interrogation from government-based firms as against private companies.
The exploration of oil and gas reserves in the western portion of Arakan state is said to have caused mass internal displacement, forced labour, and is predicted to degrade the ecology.
“We have been studying the situation in the region since 2006. Extensive human rights abuses and potential environmental hazards have been recorded. While companies try hard to keep their corporate social responsibility records straight, their pleas often fall on deaf ears,” Wong Aung added.
Meanwhile, global human rights organisations like Human Rights Watch (HRW) have been campaigning against foreign investment in Burma’s oil and gas reserves.
The New York-based group has urged the UN Security Council to “block company payments that help sustain Burma’s brutal military rule. Until then, all countries that have economic ties to Burma should act to suspend any further development of Burma’s oil and gas sector”.