AJ ~L3 y5 , L_ /!

\J
Document of
The World Bank
F'OR OFFICIAL USE ONLY
Report LNo. 9305-lN
STAFF APPRAISAL REPORT
INDIA
GAS FLARING REDUCTION PROJECT
MAY 31, 1991
Transport and Energy Operations Division
Country Department IV
Asia Region
This document has a restricted distribution and may be used by recipients only in
the nerformance of
their official duties. Its contents may not etherwise be disclosed without World
Bank authorization.
CURRENCY EQUIVALENTS
(As of January 15, 1991)
Currency units = Rupees (Rs)
One Rupee = US$ 0.051 (approx.)
One US Dollar = Rs 19.43
MEASURES AND EQUIVALENTS
I Million cubic meters of gas = 37 million cubic feet of gas
= 6,*n500 barrels of oil
= 890 mt of oil
= 1,940 mt of (Indian) coal
ABBREVIATIONS AND ACRONYMS
ADB - The Asian Development Bank
bbl - barrels
BcFm billion cubic meters
BICP - Bureau of industrial Costs and Prices
CIL - Coal india Ltd.
ECA - export credit agencv
Ell. - Encgineers India Ltd.
GAIL - Gas Authority of India Ltd.
GOI - Government of India
cOR - gas/oil ratio
HBJ - Hazira-Bijaipur-Jagdishpur gas pipeline
ICB international competitive bidding
IOC - Indian Oil Corporation Ltd.
1-EXIM - The Export-Import Bank of Japan
kgoe kilograms of oil equivalent
km - kilometer
LICB - limited international competitive bidding
LNG - liquefied natural gas
LPG - liquefied petroleuim gas
NGL - natural gas liquids
MMCMD - million cubic meters per day
MMCM - million cubic meters per year
MOEF - Ministry of Environment and Forests
mt - metric ton
MW - megawatt
OIL - Oil India Ltd.
ONGC - Oil and Natural Gas Commission
FISCAL YEAR
April 1 - March 31
i F)OR OFFICIAL USE ONLY
INDIA
GAS FLARING REDUCTION PROJECT
Loan and Project Summary
Borrower. Oil and Natural Gas Commission (ONGC)
Guarantor India, acting by its President
Amount: US$450.0 million equivalent
Terms: Repayment over 20 years, including five years of grace, at
the Bank's stan-
dard variable interest rate. ONGC would bear the foreign exchange and
interest rate risks.
Guarantee Fee: The Government of India (GOI) would charge a guarantee fee
of 1% p.a. on
the outstanding amount of the Bank loan.
Project Description: The objectives of the project are:
(a) to eliminate the flaring of about 12 million cubic mneters of associated
gas per day (MMCMD) in the Bombay High oil field and improve the
management of the Bombay High reservoir in order to arrest the
decline of oil production and optimize the ultimate recovery of hydro-
carbons;
(b) to reduce energy shortages and contribute to greater efficiency of
energy use in India's Westem Region; and
(c) to promote a greater participation of private oil companies in India's oil
and gas sector.
The project is designed to recover about 25.3 MMCMD of additional gas
from the Bombay High oilfield. The infrastructure facilities that will be
constructed under the project will make it possible for ONGC to transport
up to 29 MMCMD of additional gas supplies from offshore fields in the
Western region to the Hazira gas terminal in the State of Gujarat and to
Uran, near Bonmbay. The project, which has been designed consistent with
environmentally sound principles, includes:
* erection of two process platforms;
* construction of three submarine pipelines: i.e. (i) a 28 inch pipeline from
the southern sector of the Bombay High oilfield to the South Bassein
gas field, (ii) a 42 inch ripeline from the South - Bassein gas field to the
Hazira gas terminal, ..i (iii) a 30 inch pipeline from the southern
sector of the Bombay sHiL., oil field to the Heera oil field where it
connects with the Heera - Uran trunkline;
* the expansion of the existing gas terminal at Hazira to process the
This document has a restri, ted distribution and may be used by recipients only in
the performance of
their official duties. Its contents may not otherwise be disclosed without World
Bank authorization,
ii
additional gas supplies. This will nearly double the current capacity of
the terminal.
the provision of support for a reservoir study of the Bombay High
oilfield. The aim of this study is to optimize oil and gas production
from this, India's largest oilfield, and reduce the chances for the recur-
rence of excessive gas flaring. In parallel, the project will provide
support for the training of ONGCs technical staff.
* the provision of support for the implementation of a package of mea-
sures required to achieve proper reservoir mnanagement practices in the
Bombay High oilfield.
* the provision of support also for ONGCs ongoing efforts to reduce the
risk of environmnental damages from its offshore drilling operations and
to improve the overall safety of thewe operations.
Project Benefits: The investments under the proposed project will increase
indigenous oil
production by about 4 million tons per year and eliminate the flaring of
about 12 MMCMD of gas. The resulting increase in gas supplies will reduce
imports of naphtha, which would be otherwise required for the manufacture
of fertilizer, and of middle distillates for peak load power generation. This
will save India about US$350 million of foreign exchange annually (from
1995/96 onwards) that would otherwise be required for the import of these
fuels. The total net present value of the investment is approximately US$1.3
billion.
Project Risks: The project faces three major risks, i.e. (i) delays in
the implementation of the
project which would sharply reduce its viability, (ii) delays in the offtake of
the additional gas that will be made available through the project, and (iii)
the possibility that ONGC will not be able to raise the foreign exchange
required for the project. To minimize the risk of implementation delays,
ONGC has agreed to award the construction of major items, such as plat-
forms and submarine pipelines, on the basis of a series of contracts under
single responsibility. In addition, ONGC has w-srzd closely with the Bank
to streamline its organization and management for the implementaticn of
projects. The bidding documents for all but two of the major components of
the project will have been reviewed by the Bank before the loan becomes
effective. The risk of delays in the offtake of the gas will be signiticantly
reduced through the Govemment's decision to set up a special monitoring
committee in the Department of Petroleum and Natural Gas that will review
quarterly the progress in implementing the proposed project as well as the
projects that will utilize the additional gas supplies. The quarterly reports of
the monitoring committee will be submitted to the Bank for review together
with recommendations in case of any slippage in project implementatioi..
The Bank will have an opportunity to review the implementation of these
recommendations. To minimize the risk that difficulties in the financing of
the foreign exchange components delay the project, the Bank has worked
closely with ONGC and the Govemment to ascertain the availability of
finance through export credit agencies and suppliers' credits.
isi
Estimed Costs: Cost Comptmts
Foreign L=al Total
--US$ MiOO--
Proce platform, NQP 209.0 50.2 2592
Compresor, SHG 125.0 30.0 155.0
Proces platfDorm, SHC 230.0 55.2 285.2
Unepipe, SHGBPB 58.0 17.4 75.4
Co4dng and wrapping,SHG-BPB 15.7 6.1 21.8
Platform modifiacdons 63.3 15.2 78.5
Unepipe, ICP-Heera 70.0 21.0 91.0
Laying coting a*nd wrapping, ICP-Heera 97.0 23.3 120.3
iUnepipe, BPB-Hazira 220.0 66.0 286.0
Laying, coahlng and wrapping, BPB-Hazira 129.3 31.0 160.3
Expmnson Haim p terminal 275.3 217.8 493.1
Resrvoir nanagement servic and equipment 67.4 61.7 129.1
Engineering and proet management 7.5 22.5 30.0
Studies and trining 2.0 0.6 2.6
Environmental component 14.7 9.8 24.5
Base cost (991 prices) 1,5842 627.7 2,211.9
Physicl contingendes 158.4 62.8 2212
Price condngncndes 239.5 205.8 445.3
Total project coat 1,982.1 896.3 2,878.4
lnterest during construction 204.1 101.8 305.9
Total Financing Required 21862 996.1 3,184.3
Note: Base cost indude custoas duties od US$3744 il4ion equivalcnt.
ONGC charges interest during construction to opetios.
Financing Plan: Srav of Finaer L1x
Forei8p Totl Percent
--US$ ilo
World Bank 450.0 450.0 14.2
Asian Development Bank - 300.0 300.0 9.4
Export-Import Bank of Japan ' 350.0 350.0 11.0
Export/supplier credits - 745.6 745.6 23.4
ONGC 998.1 340.6 1388.7 42.0
Total 998.1 2186.2 3184.3 100.0
GOf's request for financng is currenly under study by J-EXIM
Estimated Disbursements: IBRD Fisa Year Year 7 Yer 2
Year 3 Yer 4 YearrS
FY92 FY93 FY94 FY95 FY96
-- -US$ milon
Annual 111.1 139.4 135.0 61.0 3.5
Cumulative 111.1 250.5 385.5 4465 450.0
Economic Rate of Retumr 30%
iNDIA
GAS FLARING REPUCTICN 4 PROJECT
Table of Contents
Eage No.
1. THE ENERGY SECTOR ................................................1
Role of Energy in the Indian
Economy ................................................1
India's Rapidly Growing Energy
Demand ..................................................1
High Energy Intensity ................................................2
Energy Conservation ................................................4
Constraints to Expanding Indigenous Energy
Production ................................................5
Energy Prospects for the 1990s ...............................................7
The Govemment's Energy Strategy ...............................................7
11. THE NATURAL GAS MARKET ...............................................
..9
Developmnent of India's Gas
Resources ................................................9
Gas Reserves ................................................9
Reasons Behind the Extensive Gas
Flaring ...............................................
10
Gas Production Prospects ................................................ 14
Gas Utilization ...............................................
15
Gas Pricing ...............................................
16
The Role of the Bank ...............................................
19
III. THE OIL AND NATURAL GAS
COMMISSION ................................................ 20
Introduction ............................................ 20
Organization and Management ............................................ 20
Institutional J-3ues ........................................... 21
Accounting, Management Information and
Auditing ............................................ 22
Financial Performance ...........................................
22
Meeting ONGC's Foreign Exchange
Requirements ...........................................
23
ONGC's Financial Relationship with the
Government ............................................ 25
ONGC's Operational Performance ...........................................
25
Investment Program ...........................................
26
Financial Prospects ...........................................
26
This report was prepared by Messrs. P. Pollak (Senior Economist), D. Fallen-Bailey
(Consultant), G.
Dolenc (Senior Country Officer), M. Flassan (Consultant), L. Kumar (Consultant), M.
Levitsky (Econo-
mist), H. Morsli (Senior Petroleum Engineer), C. Peacock (Consultant), S. Shaw
(Environmental Specialist),
J. Silcock (Consultant), H. hober (Consultant), T. Storm van Leeuwen (Senior
Financial Analyst), K.
Stichenwirth (Consultant) and Mrs. N. Parshad (Economist). Miss J. Basin assisted
in the economic and
;inancial analysis. Mr. D. Bat, m-an (Senior Mining Engineer) prepared the
illustrations. Mmes. M.
Chatterji and K. Cherrie typ . various drafts of the report.
The report has been reviewed by Ms. A. Mashayekhi and Mr. F. Najmabadi.
The report has been endorsed by Mr. H. Vergin, Director (India Department) and Mr.
J. F. Bauer, Division
Chief (Energy and Transport Division, India Department).
ii
Financing Requirements ...................................... 27
IV. THE PROJECT ...................29
Background ................ 29
Project Objectives ................................
30
Project Description ................................
30
Implementation ................................
31
Status of Project Preparation ................................
32
Environmental and Safety Issues ................................
32
Project Cost ................................
34
Financing Plan .................................
35
Procurement and Disbursemnents ................................
36
V. FINANCIAL AND ECONOMIC ANALYSIS ...................................... 39
Project Benefits ...................................... 39
Project Financial Analysis .....................................
39
Project Economic Analysis .....................................
40
Project Risks .....................................
41
VI. AGREEMENTS AND RECOMMENDATION .....................................
42
ANNEXES
1.1 Energy Balances, 1980-81 to I 388-89 ..................................... 45
2.1 Gas Production lrojiections ...................................... 46
2.2 Gas Flaring in Major Gas Producing
Regions ...................................... 48
2.3 Projected Gas Utilization .....................................
49
2.4 Gas Prices .....................................
53
3.1 Organization Chart of the Oil and Natural Gas
Commissice ................................................. 54
3.2 Summary of ONGC's Accounting
Practices .................................................
55
3.3 ONGC Sales and Revenues, 1981 to
1990 .................................................
57
3.4 ONGC Income Statements, 1981 to
1990 ..................................................
58
3.5 ONGC Sources and Applications of Funds, 1981 to
1990 .................................................. 59
3.6 ONGC Balance Sheets, 1981 to
1990 .................................................. 60
3.7 Performance Parameters .................................................. 61
3.8 ONGC's Investment Program, 1991 to
1995 .........................................
63
3.9 ONGC Rcvenue 7rojections, 1990 to 1995 .64
3.10 ONGC Income Staternents, 1990 to 1995 .65
3.11 ONGC Sources and Application of Funds, 1990 to 1995 .66
3.12 ONGC Balance Sheets, 1990 to 1995 .67
3.13 Assumptions to the Financial
Projections ..............................................
68
4.1 Layout Optimization of the Pipelines to be
Constructed ..............................................
70
4.2 Detailed Project Description ..............................................
74
4.3 Project Management Organisation ..............................................
82
4.4 Project Implemcrnt3tion
Schedule ..............................................
83
4.5 Environmental Aspects ....................
86
4.6 Detailed Project Cost .................... .
89
4.7 Project Financing Plan ...................
90
4.8 Estimnated Schedule of Disbursements ................................
92
iii
Page No.
5.1 Assumptions Underlying the Project Financial
Analysis ............................................. 93
5.2 P'roject Financial Analysis .............................................
94
5.3 Assumptions Underlying the Project Economic
Analysis ............................................. 95
5.4 Project Economic Analysis.................
....... 98
6.1 Project File ..................... . 99
6.2 Supervision Plan ......................
, 100
Map: No. 22892
INDIA
G;AS; FLAP!NG RMEUCTION PROJECI
STAFF AH PRAISAL, REIORtI
1. 1IHE. ENER(;Y SECTI'OR
Role of Energy in the Indian Economy
1.01 Energy remains critical for the Government's efforts to accelerate
evonomic giowth. T'he
Government is aware of this, and continues to invest about one-third of public
resources in the develop-
ment of indigenous energy resources. Tl.e acceleration of economic growth during
the 1980s has strainexd
the capacity of the energy sector to meet the surge in the demand for energy and,
in spite of massive
investments in the expansion of oil, gas, coal and power sectors, energy demand
continues to outstrip
supply. Thus, in the years ahead, India will again have to contend with the
economic implications of
sharply rising oil imports.
1.02 This puts the Government in a difficult position. It is under pressure
to improve the balance
of payments, reduce the budget deficit and provide a modicum of economic growth in
order to avoid
losing whatever progress has been made in the reduction of poverty during the
1980s. Und',r these
circuinstances, an increase of oil imports will most likely necessitate a reduction
in the imports of capital
goods, while a cut in public expenditures will slow the development of indigenous
energy resources
leading to a further increase of oil imports in later years. This leaves the
Government with few options.
Assuming the Government continues to pursue its objective of accelerating growth in
order to reduce
poverty and provide employment for a rapidly growing labor force, it will need to
ensur- that energy is
used efficiently, thus eliminating the demand caused by wasteful energy use. It
will also need to ensure
that investments in expanding energy production are guided by efficiency
considcrations. This coulJ be
achieved with a shift towards fewer controls and greater reNiance on market forces.
1.03 Managing the transitioni tow. ;-ds a more open, market-oriented energy
sector will bxe a
formidable task, since it will be carried out in an environment of increasingiv
severe budget and balance
of payments constraints. The proposed project is a step in this direction. Its
objectives are to eliminiate the
wasteful flaring of gas, improve the reservoir management of the Bombay lHigh
oilfield, reduce the need
for oil imports and help meet the energy needs in India's rapidly growing western
region. While the
proposed project supports change towards a more oren energy sector, it is only the
beginning ot a diffi-
cult transition. The following paragraphs highlight the main issues and
constramints which the Government
needs to address in order to raise the efficiency of energy use and indigenious
energy prOduction.
India's Rapidly Growing Energy Demand
1.04 The acceleration of economic growth during the 1980s has led to a sharp
increase in the
demand for commercial energy. While the economy grew at an average rate of 4.5%c
betweeni 1979/80 ar,d
1989/90, commercial energy demand grew at a rate of 6%. Within commercial energy,
the demand for oil
products and electric power showed the fastest growth. Their demand grew at 7% and
9.57, respectively.
1.05 In spite of the iast growth of energy demar.d, India's overall level of
energy consumnptioni is
low compared to that of other developing countries. While IndianE consume about
2(X) kilograms ot oil
equivalent (kgoe) per capita, Chinese consume 540 kgoe and Brazilians 84() kgoe.
Althouigh energy
consumption is relatively low in absolute terms, the Govmrnment is concerned ahout
it, rapid grovth and
the relatively low efficiency with which energy is used. l1o curb the growth of
delrr denmul a!id imi
-2 -
prove the efficiency of energy use, the Government continues to pursue a i wo-
pronged approach. To slow
the growth of power consumption and the use of imported oil products, tho
Government rel.es primarily
on rationing. In parallel, the Government has introduceo several energy
coi'servation' programs to
eliminiate the wasteful use of energy. Overall, the strategy has not been very
efiective. Two factors art
primari!y responsible for that: the reletively high energy intensity of major
sectors of the Indian economy
and the ineffectiveness of energy conservation; rograms.
h-igh tnergy Intensity
1 .(K Perhaps the most important factors behind the fast growth of energy
consumption are the
relatively high energy intensity of India's industrial sector and the rapidly
growing energy intensity of the
agrictiltural sector.
1.07 INDXUs'RY. While the energy intensity of the industrial sector has
deciined by 8% during the
1 980s, mostly as a result of the slower growth of energy-intensive industries,
such as steel, aluminum and
fertilizer, and the phasinig out of somne energy-intensive technologies in the
manufacture of cement and
fertilizer, the industrial sector continues to account for more than half of
India's commercial energy
consumption, and, in terms of its energy intensity, India's industrial sector ranks
near the top among
dc'veloping countries and well above the average among industrial countries.
Several factors account for
the high energy intensity and r..atively inefficient use of energy in the
industrial sector:
(a) Since Independence, India has pursued an industrial development strategy whose
main
objective was to reduce India's dependence on imports. Consequently, large
investments
were made in the 1960s and 1970s in basic energy intensive industries such as
steel, cement,
aluminum, fertilizers, heavy chemicals, refineries, etc. All of these industries
are highly
energy-intensive and absorb a considerable share of indigenous energy production.
(b) Many of these industries still use technologies and equipment which were
developed at a
time when energy was cheap. By toc.iy's standards, most of the machinery, equipment
and
infrastructure is outdated and energy-inefficient. To achieve self-sufficiency, the
Govern-
merit has encouraged the design of indigenous technologies and development ef a
capital
goods industry. Protected from international and internal competition through high
import
tar,ffs and extensive regulat ry controls, this inuu,try has few incentives to
provide Indian
industrial enterprises with energy efficient capital (oods.
(c) EInergy efficiency improvements require replacement of capital stock, process
modifications,
retrofits and technology changes, all of which require large new investments. The
scarcity of
capital ar,d the high cost of importing new technologies in the face of a worsening
balance of
payments situation continue to put the brakes on the adoption of energy efficient
technolo-
gies and the shift towards less energy-intensive industries. In addition, a growing
domestic
demand for manufactured products makes expansions of capacity more financially
attractive
thani cost cutting through efficiency improvements.
(d) Another disincentive for improving energy efficiency has its roots in the
widespread use of
'cost plus pricing' in India. This is still the most widely used approach by the
Government
for setting prices of goods and services that fall under an administered price
regime. While
the number of goods and services under administered price regimes has declined
gradually
in recent years, they are now used mainly to price the goods and services of pubil.
sector
enterprises that face little intemal or external competition. To provide some
incentives to
these enterprises to raise their overall efficiency, the Government has, over the
years, intro-
duced pricing formulas that contain 'rewards' and 'penalties' for achievement or
non-
achievement of agreed efficiency targets. This has encouraged some reduction in the
waste-
-3 -
ful use of energv. However, the effectiveness of these incentives has been blunted
by the
Government's willingness to provide financial support to 'sick' industries in order
to prevent
the closure of large enterprises aiid the loss of jobs. Price incentives for using
energy effi-
ciently are also undermined by the fact that protective import tariffs raise the pt
ixes of final
products and thus lower the relative cost of energy. Thus, in spite of the fact
that many
energy prices laced hy industrial conaumers are more or less in line with ec:onomic
prices
(the price of rnost petroleum products used by the industrial sector are at or
above border
prices and electricity prices faced by industry are also close to the estimated
long run mar-
ginal cost . they do not result in efficiency improvements.
(e) Another objective of India's economic development strategy, which contributed
to the
relatively high eneigy intensity of the economy, was the decision to ensure that
all parts of
the country shat equitably in the benefits of developmenrt. To achieve this
objective, the
Government ens,red, thtough its public investnents that economic activities and in
particu-
lar, industries that provided employrnent were set up fairly evenly spread across
the coun-
try. To supply these industries with energy an extensive energy supply system based
on
thermal power generation using coal, India's most abundant commereial energy
resource,
had to be set up. In thermnal power generation only a small share (between 25% -
40%) of the
fuel used (coal, fuel oil, natural gas, etc.) is convertpd into electric energy.
The remainder is
lost in the conversion process. These 'conversion losses' together with
transmission and
distribution losses contribute significantly to the energy intensity of the
economy.
(f) The Govemment's location policy and the resulting need for an energy supply
system based
on coal fired thermal power has contributed to the growth in the demand for middle
distil-
lates. Most of the coal deposits are in the eastem and central parts of India.
About 70% of all
coal is shipped by rail mostly to power and industrial plants that are spread
fairly evenly
across the country. The surge in energy demand during the 1980s has strained the
capacity
of the railways to move coal. This has contributed to disruptions in coal supply,
which in
turn has encouraged investrnents in 'captive' power generation using primnarily
middle
distillates. Since the railways have been replacing steam locomotives with diesel
driven
electric locomotives even though steam locomotives were more cc st efficient --
their
demand for oil products has increased sharply.
1.08 TRANSIPORT. The steep increase in energy consumption during the 1980s
is partly due to the
growing demand for energy in the transport sector. This s-ctor accounts for about
one-fourth of total
energy consumnption in India. While its overall energy intcensity has declined with
the shift from rail to
road transport (mainly because of under-investment in the railway system), its need
for oil products, in
particular diesel oil, has increased dramnatically. The current designs of
indigenously manufactured trucks
and cars are highly energy inefficient and the relatively high average age of the
truck fleet (more than 40%
of the truck fleet is 12 years old or older) contribute to the high energy
intensity of transport.
1.09 AGRICULTURE. Of all major sectors of the economy, agriculture shows
the steepest increase in
energy intensity, mainly for two reasons: (a) to increase productivity and (b)
provide a butfer against
droughts and floods resulting from the unpredictable behavior of monsoons.
Expansion of the use of high-
yielding wheat and rice varieties have increased the demand for (energy-intensive)
fertilizer and irriga-
tion. Subsidized electricity has led to a sharp increase in the number of electric
pumpsets. Together with
increased mechanization they have contributed to the rapid growth in the demand for
electricity and
petroleum products in the agriculture sector. To protect agriculture against the
vagaries of the monsoo-,
the Government has encouraged the expansion of irrigated areas. As a result of
these efforts, it takes now
twice the amount of energy to produce an average unit of agricultural output (for
example, a ton of wheat)
than it did fifteen years ago.
4-
1.19) Si II I:c('M I RADrIlONAI. It)C:OMMIKtlA!. I t At the tine of
Independence, I r.dias iiajor
source of energy was biomass, whichl accounted for more than 85% of all energy
used. Currently, biomass,
mostly fuel woodi, crop r c'ue and animal wastes, accounts for less than 40% of
total eaergy consumption.
Several factors are responsible for the sh,ift to cornmercial energy: the growth of
indcistrial production,
urban,wation, thie expansion of rural electrification and price subsidies for
electri( power andl kr -osine. The
price stlhsid ics arte rooted ifn tit ( Governrment's concern about the r ural poor
and t?he need to slow the
procc , (if (idton-;tation In part, the sihift a way froma traditional fuels is the
result of the development
proct- ; in part it is tit resilt of the Government's pricing policies for power
ar.d oil products. While it is
doobtful wihther these pril ing pXolicieS iniC1dee achit ve their intended
objectives, studies of energy use in
the rmol wtor pA)Int tito ihighly wasteful use of electricity anL a steep tise in
the deimind for niddile
distillatti ' ri injo and diesl.l oill). There are also no sigins tihat the rapid
pace of deforestation has slowed
down .
Energy Conservation
1.11 l'o eliminate the wasteful use of energy continues to be a major
objective of the
Government's energy strategy. Stidies carried out by the Government cstiinate that,
through better
energy demnand mnanagement andS conservation, the industrial sector could save 25%
and the agricultural
sctor 30t,t of their cuirretit energy demands. Howcver, up to now the Government's
energy conservation
efforts have been largely ineffective A discussion of the causes of the high energy
intensity of manjor
sctors of the cc onowiv poinits to the linderlving reasons.
1.12 lo enscure that energy is use'l efficiently wouli require fundamental
changes in the current
policy tr,men.v\ork that guides the use of energy:
(a [ Il-iirgy uisers need to have a clear economic and financial incentive to
use energy effliently.
!his woul(d require that the C;overnmrient no longer deterna.ies 'administered'
prices on the
ha.&,ls 1 flistorical costs ('cost .plus pricing'). but allows competitive markets
':e' sot prices.
I h ., w tlId nmke it ti fficuilt to pass on incre-se!; ii, the cc3t of energy to
f aal cornsumers
thElmrbu orji increase s.
oin ede' to bN effective a po!licv change wouIld require thiat producers face
internal or
esxtesrnal i lmrtOtiiio01 thus eliminating the opportunity of absorbing increases
in tihe cost of
oncts throuigh monopoflistic profits. It would also require that the Government no
longer
AlhSerbsL the 'osses of enterprises to safeguard employmenit.
O. ) Eln'rgy users would need to he able to use capital goods embodying energy-
fficient de-
signs In order to be alble to compeste, Indian entrepren1eurs would netied to bh
able to pur
chasLe Wuionnesticallv or throtugh impoxrts) the most energy-efficient capital
goodis.
hi1l f Inal V, thle a,Ilous torms of energy (fuels and electric power) need to be
priced in liine with
ni,kCt rincples. 'his 5 would require that the Government replaces price subsidy
programs,
intended to raive the standard of living of the poor, with other forms of support.
1.13 ITple)lCmenItation of theoe changes ;would bring into question the
fundamental values which
have guided Indian policvmakers since Independence. The political and financial
costs of such drastic
changes ws.)uld h ennormotis and cotuld not alone be justified with the gains in
energy conservation. Thus,
until thesc changes can be implemernted the Government will continue to rely
primarily on developing its
indigeniotis energv resources1 to the fullest extent, in order to minimize imports,
and an energy ronserva-
tion policv which 'ill ! et c! primiilv u. fn ad -hoc n trve\t.ntrt:ns aimed at
curbing the blatantly wasteful
uSe 01 itl I'
- -
Constraints to Expanding Indigenous Energy Production
1.14 As noted in the section above, efforts to manage energy demand have
been largely ineffec-
tive to late. Even if implemented successfully in th( future, energy conservation
will not fully substitute
for the need to expand indigenous energy production to close the widening energy
gap. In order to assess
the potential of further developing indigenous resources it is important to first
take stock of the energy
resource base of the country and the constraints to further increases of production
in the main energy
subsectors.
1.15 ENtcy RESOURCE BASE. Considering the size of its economy and its
rapidly growing popula-
tion, India is relatively modestly endowed with energy resources. In spite of
allocating almost a third of its
public investment resources to the development of these resources, India depends on
oil imports to meet
its domestic energy needs. India does, however, have a wide range of commercial
energy resources
including oil, natural gas, coal, hydro-electric potential and uranium.
Unfortunately their relative size
does not match the structure of energy demand (Figure 1). India's energy resource
base is dominated by
coal. Total coal and lignite reserves are estimated at more than 170 billion tons.
Although these reserves
are mostly of low quality, they are India's most important commercial energy
resource. India has also a
sizeable potential for the generation of hydro-electric energy, estimated at
100,000 MW, of which up to
now only about 13,000 MW have been developed. Environmental concems, the high cost
of, and growing
resistance to, the resettlement of a large number of people, disputes about water
rights and financial
constraints make hydro-electric power projects increasingly unattractive. Thus, the
power sector prefers to
invest in coal and gas-based thermal power generation. Considering the size of its
economy India is
poorly endowed with hydrocarbon resources. Proven and probable reserves amount to
about 840 million
tons. At projected consumption levels these reserves will last for about two
decades. Th'is, unless explora-
tion efforts succeed in raising the level of reserves, India will need to meet its
demand for petroleum
products increasingly through imports. Natural gas may provide some respite in the
short run. Natural
gas reserves, which are estimated at 961 Bcrn, would permit India to significantly
reduce imports of oil
products. Up to now this effort has been hampered by conflicting policies and
insufficient financial
resources. Finally, India also has modest reserves of uranium, which would be
sufficient to support a
nuclear power program of about 8000 MW.
1.'6 OIL AND GAs. Oil production has increased dramatically over the past
ten years, mainly as a
result of the discovery of Bombay High and its satellite fields during the
esily .)70s. These fields now
account for about 65% of indigenous production. Prior to the discovery of Bombay
high, the oilfields of
Figure 1 Reserves, Production and Consumption of Commercial Energy in India, 1990
Milluin tons of od equivalent
oil
Hydr. Hydro Hydro
1~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ ,,I'
Ga.~~~~~~~a
Reserves (83574) Production (157) Consumption (114)
%urm. Tat& Enwa R_dach Institute and World BDnk StaIf stimate
-6 -
Assam and Gujarat were the only indigenous sources of oil supply. Development of
Bombay High drasti-
cally reduced India's dependence on oil imports. However, in 1984/85 oil output
from the Bombay High
oilfield reached a plateau. Further production increases will require the use of
costly enhanced oil recov-
ery technology as well as substantial investments for the development of the
smaller satellite fields. The
Govemment's official projections of crude oil production (51 million tons by
1995/96 and 67 million tons
by 2000/01) indicate that ONGC expects to maintain current levels of self-
sufficiency through heavy
investments in enhanced oil recovery, the accelerated exploitation of undeveloped
fields, large invest-
ments in oil exploration, and substitution of a significant share of domestic oil
products demrand with
natural gas. The Bank's staff is less optimistic. Based on a field-by-field review
of oil reserves, the Bank's
staff concluded that indigenous oil production would reach a peak of 42 million
tons in 1996/97 and then
gradually decline to about 38 million tons in the year 2000; this projection is
based on the assumption that
India's oil companies will face no difficulties in getting the investment resources
(including foreign
exchange) they would need and that neither company makes any significant oil
discoveries. In case
exploration efforts result in a major oil discovery during the next 2-3 years,
production would continue
along the projected plateau postponing the inevitable decline of oil output. The
Government's projections
of indigenous oil production assume a significant increase in the pace of
developing existing in-place
reserves as well as large additional discoveries in the next few years. Both would
require large capital.
Considering the increasingly tight constraints on investment resources,
particularly in foreign exchange,
that India's oil companies will most likely face in the years ahead, the Bank's
staff recommends that the
Government implement policies that encourage the efficient use of energy and
substitution of oil products
with other indigenous energy resources. The proposed project, which would provide
the infrastructure for
the use of gas that is currently flared, is in line with this recommendation.
1.17 COAL. Because of its abundance, coal remains the mainstay of the
Govemment's energy
strategy. To meet the growing demand for coal, particularly from the power sector,
the Government
nationalized the coal industry in the early 1970s. This provided the industry with
access to public invest-
ment resources, and allowed Coal India (CIL) to meet the Government's ambitious
coal production targets
by channelling most of its investments into open-cast mining. Although coal that
can be mined in open-
cast mines in India is of low quality, it has substantially lower production costs
than that the higher
quality coal mined in underground mines. Coal India's strategy led not only to a
decline in the average
quality of its coal output, but also to a neglect of its labor-intensive
underground mines. Freqvent real
increases in the wages of miners, poor labor discipline and low labor productivity
have turned most
underground mines into loss-making operations. Hamstrung between the need to meet
production targets
and political pressure not to retrench excess labor, CIL's financial performance
became dependent on the
magnitude and timing of coal price increases and the allocation of pub!ic
resources. In all but four years
CIL closed its accounts with a loss.
1.18 Budgetary constraints will force the Government to sharply reduce its
allocation of funds to
CIL, and inflationary pressures will make it more difficult to approve coal price
increases. The Govem-
ment will have little choice but to grant CIL the autonomy it needs to operate as a
commnercial coal com-
pany, and to create a poli-y environment that would attract private investment into
an industry that is so
vital for the growth of the Indian economy.
1.19 ELECrRIC POWER. With the emphasis on self sufficiency and a policy of
balanced regional
growth, the electric power sector plays a key role in meeting the energy needs of
the Indian economy. Not
only is electricity the prime input into industries dispersed all over the country,
a large effort to expand
rural electrification to substitute for oil products has further increased the
demand for electric power.
Total installed capacity is currently 62,000 megawatts (MW). Additions to capacity
have been made at an
average growth rate of 10 % per annum, but demand for electricity has continued to
outstrip supply by
10-12 %. Low capacity utilization, transmission losses, institutional bottlenecks
and an inefficient pricing
structure which results in inadequate returns and disincentives to conservation
have contributed to
financial constraints and a widening power gap. Power shortages have adverse
implications for the
-7-
growth of the economy rendering production capacities idle and also 'or ring power
users to resort to
investments in captive power plants which increase the demand for oil products. In
view of tl.e current
budgetary constraints, it is unlikely that the gap between power demand and supply
will be reduced from
the current level of 12-15%. More importantly, the deficit between 'peaking demand'
and generating
capacity will widen significantly. The Government has essentially two options. -,,~
and hydro-electric or
thermal power generating capacity.
1.20 Hy'Vo-ELECFRIC POWER. India has one of the largest untapped
hydroelectric generating
resources in the world. However, development of this potential, which is estimated
at close to 100,000
MW, faces considerable environmental and tinancial constraints. The long gestation
periods, high capital
costs and implementation delays have deterred investment in hydro power and the
share of hydro power
in the total currently installed capacity is only 25%. While the Govemment has
continued to emphasize
the need for developing more hydro electric -.ower, especially in view of the
severe shortages in peaking
capacity, budgetary and financial constraints have encouraged a shift away from
hydro electric power to
shorter gestation, lower capital cost, coal-based thermal power generation.
1.21 TFERMAL POWER. Most of the existing thermnal power generation capacity
is based on coal. In
light of the vast resources of coal, the shorter construction period for thermal
power stations than that of
hydro-electric plants, and the locational flexibility of thermal plants wherever
access and water facilities
are sufficient, the Govemment has increasingly invested in coal based thermal
power. This investment has
not been without cost. High conversion losses, high costs of transporting low
quality coals over long
distances, high transmission losses, the firing up and idling of boilers to meet
peak demand using large
quantities of expensive fuel oil, and growing environmental costs of burning high
ash coal are raising the
cost of coal-based power generation and reducing its attractiveness as the premier
option t3 meet India's
rapidly growing energy demand. Gas- based combined cycle plants, which have lower
energy conversion
losses and shorter gestation p2riods than even coal plants, have been limited to
areas near gas fields.
Energy Prospects for the 1990s
1.22 Table 1.1 summarizes the prospects for the growth of energy demand and
supplies during
the 1990s. Oil production will be constrained by the growing scarcity of foreign
exchange and the need to
shut-in an increasing number of oil wells with a high gas/oil ratios. The Bank's
staff doubts that India's oil
companies will be able to attain, under these circumstances, the Government's
production target of 67
million tons by the end of the decade. In addition, the financial constraints and
environmental pressures
confronting the power and coal subsectors will most likely sharply reduce the
expected growth of their
respective outputs.
The Government's Energy Strategy
1.23 With the widening gap between energy demand and supply, and tight
resource constraints,
the Government needs to rethink its strategy of relying wholly on increasing
indigenous supply. In the
past, the energy sector has absorbed as much as 30% of total Plan outlays. It is
unlikely that the Govern-
ment can afford to increase this share. On the other hand, increasing oil imports
will place a heavy burden
on the balance of payments. Under these circumstances the Government is faced with
a limited range of
options to bridge the widening gap between energy demand and indigenous energy
supplies.
1.24 ENERGY CONSERVArON. The first option is to contain the growth of energy
demand. This can
only be done through a concerted effort at energy conservation, reducing the energy
consumption of the
highly energy intensive industrial, agricultural and transport sectors. While the
Government is now
dedicating more resources to energy conservation efforts, the sheer magnitude of
the problem and the
structural changes required indicate that it will be some time before any impact on
demand will be felt,
-8 -
Table 1.1 Commercial Energy Supplies and Their Uses in India, 1970 to 2000
Miliwn tons of oil cquivlent
Enrrgy Resources/ Sectors 1970 l980 1990 2000
Energy produc.ion 46 74 147 223
(il 7 12 32 39
Gas 1 2 12 40
C oal 36 56 98 135
Electricity 2 4 5 9
Net imports 12 17 28 66
Oil 12 16 26 60
Coal 0 1 2 6
Energy Supply 58 91 175 289
Conversion and distribution losses 13 20 48 64
Stock changes 1 1 2 2
Energy use 44 70 125 223
Industry 22 40 65 104
Transport 12 17 29 52
Agriculture 1 2 5 14
Residential and commercial 5 5 12 24
Non-energy uses 4 6 14 29
S'Lurce Tata Energy Research Institute, World Bank s^ff projectons
1.25 COMMEIRC'JAI. ORIEN71 ATION. In addition to using energy efficiently,
there is a pressing need to
improve the efficiency of the existing energy supply infrastructure and the p;ublic
sector companies in the
energy sector. Ihe Government needs to implement drastic institutional and pricing
reforms to allow the
oil, gas, coal and power industries to operate along commercial lines. The
resulting increase of internally
generated resomrces would make these industries less dependent on budgetary
resources.
1.26 INCEASED INVOVI.VI .MENT OF TIHE PRIVATE SECTOR. In view of the tight
budget constraints, the
Government is now looking towards the private sector to mobilize additional
resources, particularly in oil
exploration and power generation. In oil exploration, the Government is planning to
again invite (fourth
round) bids trom international oil companies and the Indian private sector for
exploration and develop-
ment of oil and gas fields in India. The Government is also initiating policies to
attract private sector
participation in the power sector, particularly in coal and gas based thermal
generation.
1.27 ACci.EFRATI ED DlviELoPMFKI OF INDIGENous ENERGY REsoukcEs. The
overriding objective of the
Government's energy strategy will remain the full development of India's indigenous
energy resources, in
particular its natural gas resources to meet the increasing shortage of energy
supplies and reduce the need
for oil imports. The current project aims precisely at providing the requisite
infrastructure to reduce
wasteful flaring of associated gas and optimal utilization of both associated and
free gas resources in the
country.
11. THE NATURAL GAS MARKET
2.01 Although India's reserves of natural gas are small compared to its
reserves of coal and its
hydroelectric potential, natural gas is playing an increasingly important role: gas
takes some of thc
pressure of the demand for oil pioducts (fuel oil, naphtha and kerosine); it also
reduces the demand for
-9 -
coal, particularly in India's Westem Region, which is farthest away from the main
coal producing areas -n
India; it helps to reduce India's widening energy gap at a time when oil and coal
production fall short of
production targets; finally, its use contributes significantly to the reduction of
environrmental pollution,
which is particularly severe in t' e highly industrialized Western region. This
chapter provides an over-
view of India's 'associated' and 'free' gas resources, the likely demand for gas
and the steps the Govemn-
ment has taken to eliminate the flaring of gas and ensure that available gas
supplies are used efficiently
(e.g. gas utilization and gas pricing policies).
Development of India's Gas Resoutrces
2.02 Natural gas has been produced in India for many years jointly with oil
in Assam. However,
apart from a small amount used for internal consumption by the oil company (Oil
India Ltd.), most of this
gas was flared. In the rnid-1960s ONGC began to explore systematically for oil all
over India. Although
the main thrust of ONGC's exploration efforts was directed at finding oil, these
efforts led to the discovery
of several free gas fields: the Cambay Basin (in the State of Gujarat) in 1960, the
giant Bombay High oil
field (about 160 kilometers north-west of Bombay) in 1974, the Krishna-Godavari
basin (in Andra Pradesh)
in 1985 followed by the discovery of oil and gas in the offshore Ravva field in
1987; the Cauvery Basin (in
the State of Tamil Nadu) in 1989. When oil discoveries were put on production, the
'associated' or 'solu-
tion' gas, which is unavoidably produced with the oil, was for the most part
flared. Although the main
thrust of ONGC's exploration efforts was directed at finding oil, these efforts led
to the discovery of
several free gas fields.
Gas Reserves
2.03 Gas is found in India mainly in four widely separated regions, the
Northeast (Assam,
Tripura), the eastem region (Krishna-Godavari), the south-east (Cauvery), and the
western region (Bom-
bay off-shore, Cambay and Rajastan). India's gas reserves are estimated at 961
billion cubic neters (Bcm).
They consist of 320 Bcm of associated and solution gas and 641 Bcm of free gas.
More than 50% of these
reserves are located in the Bombay Offshore area. Up to now about 150 Bcm of gas
have been produced, a
large part of which has been flared. This quantity represents about 13% of the
original recoverable gas
reserves, whereas 32% of the original recoverable reserves of oil have been
produced.
Table 2.1 ONGC's Gas Reserves, 1990
Billion cubic etrs
Area Sod ution Gs Frw Gas Tota
Bombay offshore 64.5 391.6 456.1
Kutch offshore 0.0 0.3 0.3
Krishna-Godavari 2.6 18.3 20.9
C^ ery 3.9 2.5 63
1 wr Assamn 21.6 3.2 24.8
i-Arakan Fold Belt 0.1 9.6 9.8
Carnbay 37.1 55.5 92.6
Rajasthan 0.0 1.0 1.0
Andaman and Nicobar Islands 0.0 0.1 0.1
Total India 129.8 482.1 611.9
Source ONCC
-10-
2.04 REGIONAL DlsrTIBunON OF GAS RESERVES. Since gas contains much less
energy than oil (on a
volure basis), it is expensive to transport; gas is also difficult to store; and
the need to maintain a ctertain
pressure in the pipeline system requires close coordination between gas producers
and users. In the gas
industry, this close link between producer, gas transmission and distribution
company and users, fre-
quently referred to as the 'gas chain', res .nbles the relationship between power
generating companies,
transmission and distribution companies and the users of electricity. Since about
90% of ONGC's gas
reserves (Table 2.1) are located close to the highly industrialized western and
northwestern regions, whose
energy needs are met primarily through coal, there is a strong incentive to develop
these gas resources.
2.05 The situation is somewhat different in the north-eastern region, which
has the second
largest reserves. There are two separate gas producing areas in this region: the
oilfields of Assam and
Arunachal Pradesh and the free gas fields in the land-locked state of Tripura.
Assam has oil and coal
resources that far exceed its own requirements, and companies find it difficult to
mnarket all the associated
gas. Unlike in the western region, oil companies in Assam have little incentive to
develop free gas re-
serves. Although gas is the major source of commercial energy in the State of
Tripura, the local demand is
too small and major gas markets are too distant to justify at present the
development of the gas resources
that have been discovered there.
2.06 1he lack of remunerative gas markets has been the major disincentive
for oil companies to
explore more aggressively for gas. There is widespread agreement among geologists
that future discover-
ies will most likely consist of gas fields. A rapi -ly growing demand for oil and
balance of payments
consideration will remain the driving force behind ONGCs and OIL's all-out efforts
to explore for oil. The
relatively low prices producers receive for gas encourage this. Gas goes a long way
towards replacing oil
products and coal. In setting producer prices for oil and gas, the Government needs
to carefully weigh the
cost of encouraging oil exploration in areas that would yield high cost oil against
the benefits of exploring
for low-cost gas resources.
Reasons Behind the Extensive Gas Flaring
2.07 India is not taking full advantage of gas resources that are currently
available. Current gas
reserves could sustain a production of 90 million cubic meters per day. Yet, in
1990, India produced only
slightly more than half of that (53.2 MMCMD). Only two-thirds of the gas produced
was actually used
one-third of the total gas production was flared (Annex 2.2). The substantial gas
flaring has been caused
by a number of factors, explained in the following paragraphs. These factors fall
into two broad categories:
technical factors which have their roots in decisions related to the development of
oilfields and a number
of institutional factors that have slowed the development of gas markets in India.
2.08 GAS FLARINC IN Tn E BOMBAY HIGH OILFIELD. The reason for the sudden
increase in flaring gas
during the 1980s lies principally in the production history of the Bombay High
oilfield. The reasons are
various, some connected with the nature of the oil reservoir rock and somne
attributable to the production
regime of the field.
2.09 The reservoir rock is a fossil reef limestone which contains highly
permeable layers interca-
lated in a much less permeable matrix. Originally all the reservoir rock layers
were saturated with the
same fluids, but in the course of oil production pressure differentials developed
within the reservoir and
the more permeable zones acted as conduits to bring gas and water towards the
producing wells, bypass-
ing the oil in the less permeable sections of the reservoir. This problem was
compounded by an overall
reservoir pressure drop resulting from an increase of oil production rates not
being compensated ad-
equately by injection of water into the reservoir below the oil/water contact, as
envisaged in the original
production plan. The water injection plan was initiated too late and on an
inadequate scale.
- 11 -
2.10 The problem was further compounded by well drilling and completion
techniques em-
ployed in the wells. These permitted the presence of channels and voids in the
current layer surrounding
the oil well casing pipe, so permitting the vertical migration of fluids up and
down behind the casing.
Since fluid flow in an oil reservoir is influenced by pressure differentials in the
reservoir rather than by
gravity, this permitted the most mobile fluids, gas and to a lesser extent water,
to be drawn towards the
producing section of the well. Thus, some of the free gas from the gas cap has also
been produced with the
oil.
2.11 The net result of all these effects has been a dramatic rise in the
gas/oil ratio from the
producing oil wells. The natural solution gas volume in the reservoir was 90 cubic
meters of gas to one
cubic meter of oil (GOR 90 v/v). In the north half of the field, at the start of
water injection the GOR was
175 v/v, and by April 1990 it had risen to 520 v/v. In the southem part of the
field the producing GOR
was 150 v/v until the end of 1985. Water injection conmmenced in 1987, out by the
end of 1989 the GOR
had risen to 360 v/v. Some wells were producing with a GOR in excess of 1000 v/v,
and ONGC has now
taken a decision to shut in such wells in order to avoid dissipating reservoir
energy. In 1990 the Bombay
High field produced overall 20.1 million tons 3f oil and 9.7 Bcms of gas at an
average GOR of 400 v/v.
Since the existing gas pipelines from Bombay High field can handle only 16.5 MMCMD
as compared with
an associated gas production of 26.5 MMCMD in 1990, the balance (minus the amount
used for in-field
use) is flared.
2.12 Remedial action being taken by ONGC consists of shutting in wells with
high GORs,
drilling of work-over wells with high permeability zones in the reservoir and voids
behind the casing in
attempt to seal them off and accelerated installation of water treatment and
reinjection facilities. As a
result of these efforts ONGC has reduced associated gas production, although at the
coti of a reduction of
oil production; as ONGC continues its strategy of containing excessive gas flaring
by shutting in wells
with a high gas/oil ratio, oil output will continue to decline correspondingly.
2.13 LAcx OF PiPE NE NETuWORK. Despite huge investments in the development
of offshore gas
projects, India still has a relatively inmmature gas pipeline infrastructure. Until
the early 1980s little at-
tempt was made to construct a pipeline network for gas distribution. There are two
reasons for that. Until
the mid-1980s the volume of gas (associated as well as free gas) available from the
Bombay offshore area
was vastly underestimnated. When it became apparent during the late 1980s that gas
could play a signifi-
cant role in reducing energy shortages in the Western region and take some of the
pressure off the balance
of payments, the Govemment could no longer mobilize the foreign exchange required
for these invest-
ments.
2.14 SLOW EXPANSION OF MARKJES OR GAS. In addition to the unexpected
increase of associated gas
in the western offshore area and the lack of pipelines for the transmission and
distribution of gas, the
Govemment paid little attention to the timely development of markets for the gas.
As mentioned in the
introduction to this chapter, the efficient use of gas resources requires close
coordination between gas
producers and consumers, (costly) investment infrastructure facilities for the
transport of gas and institu-
tional arrangements that encourage the expansion of the gas market in line with
potential production.
Apart from establishing a national gas marketing company, GAIL, which was initially
preoccupied with
the construction of the HBJ gas pipeline, the Govemment did little to encourage the
growth of gas mar-
kets. Poor coordination between gas producers ONGC, GAIL and najor potential gas
consumers, the lack
of a clear policy that would spell out how the conflicting demands on gas resources
by major interest
groups, such as the fertilizer and power industries, should be resolved and the
lack of a pricing policy for
gas were the main factors that slowed the growth of gas markets. They will be
discussed briefly in the
remaining paragraphs of this chapter together with steps that have or will be taken
by the Government to
resolve these issues.
- 12-
2.15 POOR COORDINA110N BE1WEFN PRODUCERS AND CONSUMERS. Efficient use of gas
requires careful
coordination of plans for the production and the use of gas. This coordination is
particularly critical in the
case of associated gas, where the option for suppressing its supply are usually
limnited. After all, the
supply of associated gas is determined by the demand for oil and, unless
reinjection of associated gas is
feasible, it has to be either used or flared. While some efforts were made in the
Planning Commission in
the context of the preparation of the Seventh Five-Year Plan to ensure that tho gas
supplies projected by
ONGC and OIL would be fully allocated to specific consumers, there was no
institutional mechanism in
place that allowed the Planning Commission to change these allocation plans, in
case more (or less) of the
projected volume of gas became available or designated consumers failed to use
their gas allocations. The
Government has agreed to set up a body ('Gas Coordination Committee9) in the
Department of Petroleum
and Natural Gas that will monitor quarterly the implementation of oil and gas field
developments and
revise gas production plans accordingly; it will also monitor quarterly the
progress in construction of
plants and other facilities (pipelines, gas processingfacilities, etc.) required
for the offtake of gas. This
body will issue a quartcrly report, in which it will list any deviation from the
plans of gas producers and
potential consumers. This report will also contain recommendations for steps that
would need to be
taken to ensure the efficient use of projected gas supplies. Copies of these
reports would be submitted to
the Bank for comments . The Bank's staff recommended that greater consideration
should be given in the
future to retrofitting existing industrial plants to burn gas, preferably on a
dual-fuel, interruptible basis. In
most other developing countries conversion has been a major early factor in the
development of gas
markets. Conversion has the advantages of short lead times, little capital
requirenent and establishment
of dual-fuelled plants providing future demand flexibility. Benefits in terms of
reduced oil imports are
substantial. Increased attention to conversion and dual firing in power and
industry in India could greatly
improve the efficiency of offtake in the short and medium term. This would give
GAIL much needed
flexibility in coping with supply and demand fluctuations, quite apart from the
environmental benefits
which would accrue as a result of such a policy. This would obviously require
construction of a secondary
gas distribution system along the HBJ pipeline.
2.16 UNCLEAR GAS USE PoucIy. Until the late 1970s oil companies sold gas to
consumers in the
vicinity of oilfields at whatever price the market would bear. The completion of
the gas pipeline from
Bombay High to Uran in 1978, following upon the discovery of the large reserves of
South Bassein two
years previously, led to an examination of gas use options by the Govemment. In
1979 a committee
recommended that butane and propane (C3/C4) fractions be separated for liquefied
petroleum gases or
bottled gas (LPG) use, and the ethane and butane (C2/C3) fractions be used for
petrochemical feedstock.
The methane (Cl) fraction (about 80% of the total) was to be used as fertilizer
feedstock, where it would
substitute for naphtha. Use for power generation was rejected in view of the
availability of domestic coal
at prices competitive with the high oil prices prevailing at that time. The
economics of fertilizer produc-
tion, which favor location of plants close to consuming areas, and the desire to
spread the benefits of
offshore gas to states other than Maharashtra, led the committee to reconmmend that
the bulk of gas should
be allocated to fertilizer plants in the Westem and Northern states. To supply
these plants, the 1300 km
Hazira-Bijaipur-Jagdishpur (HBJ) pipeline was constructed to take gas through
Gujarat and Rajasthan
to Uttar Pradesh. During the 1980s the Government's gas utilization policy shifted
towards broader uses
for gas, for power and liquid fuel replacement in industry. This change of policy
was due to a perception
that gas availability would exceed the requirements of the fertilizer sector, and
to the increasing attraction
of combined-cycle power plants for reducing India's power shortages, particularly
in regions away from
the coalfields in the eastern part of the country. It was decided to construct
eight combined cycle power
plants, with total capacity of 1500 MW along the HBJ gas pipeline.
2.17 The decision to give priority to fertilizer plants in the allocaticn of
gas has resulted in a
substantial underutilization of the capacity of the HBJ pipeline and the full
development of the South
Bassein (free) gas field. Two distinct reasons lie behind the shortfall in gas
demand along the HBJ pipeline:
- 13-
(a) Construction of three of the six fertilizer plants planned in the early 1980s
has only started
very recently. This has been due to the delays in the authorization process and to
changes in
the fertilizer pricing system after authorization of the plants, which reduced the
profitability
of fertilizer production causing the plant's sponsors to delay investments.
(b) The two combined cycle power plants located along the HBJ pipeline have been
unable to
operate at base load as originally planned, because the higher unit cost of power
from new
gas-based combined cyclc plants has made it difficult for the National Thermal
Power
Corporation to sell their electricity to the SEBs. SEBs can purchase base-load
power more
cheaply from older coal-fired thermal power plants.
2.18 In March 1990, the Department of Petroleum and Natural Gas issued a
paper outlining the
Government's policy for allocating gas to consumers. The paper recognizes that the
gas market in India is
heavily dependetit on fertilizer production, power generation, and relatively large
commitments to new
metallurgical plants producing sponge iron by direct reduction of iron ore. The
paper contains the follow-
ing specific recommendations for the use of gas:
(a) first priority is given to the elimination of gas flaring, except where
flaring cannot be
avoided due to technical reasons, and the extraction of LPG and other gas
fractions. Thus,
the following statements refer to lean gas or methane (C1);
(b) to ensure that existing gas resources are fully used, the paper recommends the
adoption of a
time-bound gas utilization plan and the signing of gas contracts well in advance of
the actual
use of the gas;
(c) where competitive claims on gas resources require a decision on gas
allocation, this decision
should be based on the imputed value of gas; the user with the higher imputed value
should
receive the allocation;
(d) preferenre should be given to the allocation of gas to the power sector. The
rationale for this
recommendation is based on India's persistent power deficit, and the fact that,
unlike
fertilizer where imports are likely to be less expensive than domestically produced
fertilizer
for the foreseeable future, power cannot be imported. However, gas should not L
allocated
to base-load power plants unless these plants are located in areas far away from
coal mines.
In the allocation of gas to base-load power plants, associated gas should be used
first. Power
plants that generate power for peaking purposes could use free gas, since there is
greater
flexibility in adjusting gas supplies from these fields.
(e) in the decision on the development and use of gas resources priority should be
given to the
use of associated gas; free gas fields should only be developed after firm
commitments for
the use of their gas have been received;
(f) to reduce the risk of delays in the offtake of gas, the Department of
Petroleum and Natural
Gas should be authorized to seek commitments for the use of gas that exceeds
projected
availabilities by up to 12.5%; contracts for the 'excess commitment' of 12.5%
should be on a
'fallback' basis, that is at a discounted gas price. GAIL confirmed that this
policy had been
implemented. Its current commitments to potential gas consumers (Table 2.4) exceed
pro-
jected gas supplies and offtake by a sizeable margin.
2.19 Overall the policy recommended by the Dep.artment of Petroleum and
Natural Gas should
eliminate gas flaring and result in the efficient allocation of gas resources. The
Government has agreed
that it will ensure that gas allocations to end-users will be economically
efficient; to this end the Govern-
- 14-
Table 2.2 Reserves and Marketed Production of Natural
Gas in Selected Developing Countries, 1990
Bill wn cubk wmiS
Country Resere Produc*im
Algeria 3248 43
Venezuela 2993 18
Indonesia 2590 27
Mexico 2060 23
Malaysia 1611 13
China 1000 14
India 961 19
Argentina 765 17
Pakistan 551 7
Bangladesh 360 3
Egypt 351 5
Bolivia 117 2
Sources: Oil and Gas journal, ONCC, UN World Energy Statiscs
ment will submit annual teports to the Bank about changes in gas allocations
together with their im-
puted or net-back values.
2.20 LACX OF A Ct.rEAR RFSPONSIBILnTY FOR GAS MARKIN. Production,
transport, and distribution of
gas is entirely in the hand of state organizations, mainly OCNGC, OIL and GAIL. Gas
supplies are allocated
administratively by the Department of Petroleum and Natural Gas. Until recently
both the producing
companies, ONGC and OIL, and GAIL were allowed to sell gas to final consumers. To
ensure the orderly
matching of supply and demand, and the consistency of demandfrom established
plants, the Government
has decided to streamline all marketing activities and transfer the sole
responsibility for the marketing of
gas in India to GAIL. This decision greatly strengthens GAIL's role as a gas
marketing company, bringing
their operations closer into line with gas marketing companies in industrial
countries. Apart from elimi-
nating inefficiencies in the marketing of gas, this decision will make it easier to
implement the recommen-
dations of the Gas Coordination Committee (para. 2 15), which will be set up in the
Department of Petro-
leum and Natural Gas.
Gas Production Prospects
2.21 In terms of well head gas production, India ranks among the leading
gas producing devel-
oping countries (Table 2.2). The Government's current plans call for the full
development of the remaining
discovered gas resources during the 1990s, which will lead to a substantial
increase in gas availability in
the medium term. Expected gas production in India's major gas producing region, the
Western offshore
area, is shown in detail in Annex 2.1. Table 2.3 which summarizes these
projections, shows that associated
gas production will decline fairly rapidly after the year 2000. The significance of
these figures can be
appreciated when it is realized that 1000 cubic meters of natural gas have
approximately the sante calorific
value as one ton of oil, for which it can substitute in power stations, industrial
steam raising, process heat,
etc. Natural gas can also substitute for coal used for these purposes. Given that
the greatest reserves of gas
are in the west of India, whereas the coal fields are nearly all in the east, the
substitution of gas for coal
can lead to substantial economic and environmnental benefits.
- 15 -
Gas Utilization
2.22 The increase in gas supplies as a result oi the project will be used in
three regional markets:
(a) the Bombay market served by the Uran terminal. This market serves a varied
base of fertiliz-
ers, power and industry close to the terminal at Uran, with substantial potential
demand
arising from Bombay's concentration of heavy industry;
(b) the Gujarat market served both from the terminal a' Hazira and from the
ortshore Gujarat
fields. This is a diverse market, with a number of large power and fertilizer
customers, and
some 50 small industrial users; and
(c) the Northern market se-ved by the HBJ gas pipeline. The primary users along
the gas
pipeline will be power and fertilizer plants as well as industrial users.
Annex 2.3 provides a detailed overview of the current pattern of gas allocations
and projected gas use in
the three gas markets served by the project. It also contains a review of the
status of implementation of
projects that have received gas allocations and are expected to come on stream over
the next five ye rs.
Table 2.4 summarizes this information.
2.23 TtuF BOMBAY MARKET. Bombay is one of the more industrialized arees of
India, and gas is
consumed by power stations, fertilizer and petrochemical plants. The market for gas
in Bombay is pro-
jected to expanc to 16 MMCMD by 1995, partly due to increasing consumption by
existing consumers and
partly to the construction of new petrochemical and metallurgical plants. This
market has a large energy
deficit, and the Bank's staff agrees with GAIL's expectation that all allocated gas
supplies will be utilized.
2.24 THlE GUJARAT MARKET. This market, which is centered around the Hazira
gas terminal,
receives gas from oil fields in the western region. The demand for gas in this
market is dominated by
fertilizer and power plants, and some 50 industrial users. In general this is an
energy-deficient region, and
since gas will be sold at 'landfall prices', the Bank's staff expects that there is
only a small risk that there
will be significant shortfalls in the offtake of the gas supplies a,located to this
marke..
2.25 TinE NoR11iaLN MARKET. ThM HBJ gas pipeline has currently a capacity of
20 MMCMD. With
additional compression and some 'looping', this capacity can be increased to 33.5
MMCMD. At present,
plants along the HBJ gas pipeline use barely 9 MMCMD. Some of the reasons for
delays in the offtake of
gas have been listed in paras 2.08 - 2.16. GAIL charges consumers along the
pipeline an additional fee of
Rs 850 per 1000 m3. 'Te National Thermal Power Corporation has pointed out that it
cannot sell power
generated in combined cycle power stations to SEBs at prevailing power tariffs and
the higher gas prices
along the HBJ gas pipeline. Offtake of gas along the HBJ poses a serious marketing
risk for gas. This risk
has been further heightened by the growing scarcity of investment resources, which
may delay the
completion of projects along the HBJ gas pipeline. The Bank's recommendation to set
up a monitoring
body in the Department of Petroleum and Natural Gas (para. 2.15) makes it possible
for the Goven.ment
to redirect gas supplies to the Gujarat market in a timely manner. If there ar,.
clear indications that the gas
supplies allocated to users along the HBJ are not utilized, the Governrment and
GAIL wi'l have to rethink
their gas marketing strategy for the western offshore region, and address the
constraints that prevent the
marketing of a larger share of gas supplies in the Bombay areai.
Gas Pricing
2.26 The Government's pricing policy for gas remains a key factor in the
successful and timely
development of gas markets. Gas pricing is a highly controversial issue. The
Government has informally
discussed the various options for pricing of gas with the Bank. The policy that is
currently before the
Cabinet is in line with the Bank's recommendations.
* l6-
Table 2.3 Gas Production and Utilization in the Westem Offshore Region, 1991 to
2010
Millaim cubic metm per day
Year .4ssc iated F:er Total Ilazira Termnal Uran Terminal Total
GasC ('as Gas Capacity Offtake Capacity Offtake Cilt4ke
1991 17: 7.5 24.6 20.0 12.5 12.5 12.1 24.6
1992 t:7.5 9.7 27.2 20.0 14.7 12.5 12.5 27.2
1993 13.8 13.8 29.6 20.0 17.6 12.5 12.0 29.6
1994 20.7 15.3 36.0 200 20.0 16.0 16.0 36.0
1995 23.3 12.7 36.0 20.0 20.0 16.0 16.0 35.0
1996 32.2 28.8 61.0 45.0 28.0 16.0 14.0 42.0
1997 30.3 30.7 61.0 45.0 38.0 16.0 14.0 52.0
1998 27.3 33.7 61.0 45.0 45.0 1&0 16.0 61.0
1999 26.0 35.0 61.0 45.0 45.0 16.0 16.0 61.0
2000 23.8 37.2 61.0 45.0 45.0 16.0 16.0 61.0
2001 21.5 39.5 61.0 45.0 45.0 16.0 16.0 61.0
2002. 18.9 42.1 61.0 45.0 45.0 16.0 16.0 61.0
200.3 16.6 44.4 61,0 45.0 45.0 16.0 16.0 61.0
2034 15.0 46.0 61.0 45.0 45.0 16.0 16.0 61.0
2005 13.6 47.4 61.0 45.0 45.0 16.0 16.0 61.0
2006 11.6 49.4 61.0 45.0 45.0 16.0 16.0 61.0
2OCr 10.5 50.5 61.0 45.0 45.0 16.0 16.0 61.0
20038 9.5 51.5 61,0 45.0 45.0 16.0 16.0 61.0
2(X9 9.0 52.0 61.0 45.0 45.0 16.0 16.0 61.0
2210 8.4 52.6 61.0 45.0 45.0 16.0 16.0 61.0
Notes: 'Net gas availability e.g. after internal use and tkidng into account
compressor and pipeline
constraints
I Free gas production includes production from new known fields (Annex 2.1) with
additioinal produc-
tion from South Basseinaasumed as meeting denud as reqired.
Sourre ONGC and mission estimates.
2.27 ThiEORT ICAL CONSIDERAIONS. Gas prices have three important
functions: (i) to provide an
incentive to consumers to use gas efficiently, (ii) to encourage the optimal level
of investments in potential
gas-using industries, and (iii) to stimulate exploration and development of gas
resources. While nearly ali
commodity prices have these functions, the physical link between gas producers and
consumers (gas
chain') makes it difficult to determine gas prices under 'free market conditions'.
The situation is similar to
the pricing of &c'ctric power. The physical link between the producer (power
generating company), the
transmission and distribution companies, and consumers reduces the number of
altemative sources of
supply and thus encourages monopolistic pricing practices. This risk is
considerably smaller in many
industrial countries where gas producers have the option to sell their gas to
several gas companies, while
gas companies have the option of buying gas irom a number of producers; and,
consumers have the
option to switch to alternative fuels. In most developing countries, producers have
little choice but to sell
their gas to a national gas company and to allow the Government to set prices.
Depending on whether gas
supplies exceed detnand or demand exceeds supplies, two different approaches to gas
pricing have
emerged. For countries where supplies exceed demand, the long-run marginal cost of
gas prm !iction plus
a depletion premium becomes the correct basis for settirng gas prices. For
countries, such as india, where
demand is likely to exceed gas supplies for the foreseeable future, the correct
pricing basis to achieve the
pricing objectives outlined above is the cost of the marginal replacement fuel. The
Government's proposed
pricing principles are in accordance with these principles.
2.28 EVOLULnON OF A PRICING POLI, Y FOR NATURAL GAS. In India gas has
historically been vroduced
along with crude oil. Since most such gas, which would otherwise be flared, is sold
to consumers on a
cost-plus basis, there has been no pressing need for a comprehensive gas pricing
policy. With the i dvent
of larger vohtmes of offshore associated gas from Bombay High, ONGC and the GOI
have been moving
- 17 -
more towards replacement pricing over the past few years. As a result, a numTlber
of dlifferent pricing
levels have evolved based on contractual arrangements negotiated at different times
in different regions ot
the country. For example, on shore associated gas from Gujarat has been pricedi as
low as Rs 355 per
1000m3. Although this price is the result of a decision by an arbitration
cormnittee, it is indicative of the
low contractual prices ONGC received as a result of the lack of alternative markets
for gas at the tinme ot
field development. Offshore associated gas has been priced between Rs 555 and Ks
2,78) pxr l(.Xhrn,
depending on end use. The lower price was for interruptible supplies to power
plants, anid thes higher
pnce for guaranteed supplies to fertilizer and industry.
2.29 With the advent of large quantities of free gas (primarily from
South Bassein), the Govern-
ment recognized in 1986 that there was a need for a more comprehensive pricing
policy. T'hey examined
various policy optioris and eventually adopted the following set of pricing
principles:
(a) the base price of natural gas should be linked to the price of the fuel or
fkedstock repliced;
(b) the price structure should be simple to administer and to underst, nd, and
with prices to
users to be uniform along the pipeline, and
Table 2.4 Gas Commitments and Offtake by Sector, 1991 to 1995
Million cubic meters per day
Mlarket/ Sector 1991 l992 1993
1994 1995
Bombay market
Fertilizer 5.10 5.10 5.10
5.40 5 40
flower 4.50 6.00 6.00 6.
(X0 6(0)
Industry 2.98 3 73 3,74 5
94 W.10
Other 000 ()10 (050 (0(8
1 S(2
Subtotal Bonibay market 12 58 14 93 15 34 18
14 1l (X)
Expected offtake Bombay market 12.50 12.50 12.50 16.
(0) In (X)
Cujarat market
Fertilizer 3.30 3,30 3.30 3
30 3.30
Power 0.00 0,00 0.0()
2.25 2.25
Industry 0.80 0.80 2.80
3.7(0 4.70
Otther 1 00 1 00 1.3(2
1.30 1 30
Subtotal Gujarat market 510 5.10 7.40
10.55 11 S5
Expected offtake Gujarat market 5.10 5.10 7(X)
9.25 1(00
Northern market (HBJ pipeline)
Fertilizer 5 40 5,40 5.40 1
2. f 14.40
Power 5.10 7.60 7.60
7.85 11 85
Industry 0.50 1.00 2.30 5
40 7.2(
Other 0.50 0.50 0.80
1.00 1.0()
Subtotal northern market 11.50 14.50 16.10
26.85 3445
Expected offtake along HBJ 7.40 9.60 1060 1875
24.50
Total commitments 29.18 34.53 38 84 55
S4 (50)
Source GAll. and mission estimates
-18 -
(c) the gas company, GAIL, should earn a fair return on costs. Any surplus would
accrue at the
producer end, where the resource rent would be taxed by the Government.
2.30 These policy principles have been formalized into the following set
of gas prices announced
in mid-1987:
(i) gas at landfall points and onshore gas would be sold at Rs 1400 per 1000m3;
(ii) gas along the HBJ gas pipeline would be sold at Rs 2250 per 1000 m; and
(iii) in Assam, where associated gas exists in surplus, gas would be sold at Rs
500 to Rs 1000 per
1000m3. Allowances are Iso made for discounts in the cases of interruptible users,
and to
encourage market build-up during the initial years of new fieid development.
2.31 The Government had decided to review gas prices every three years.
In 1989 the Govern-
ment asked the Bureau of Industrial Cost and Prices (BICP) to review the existing
pricing policy for gas
and, if necessary, recommend changes. In March 1990 the BICP issued its report, in
which it proposes that:
(a) the price paid to producers (ONGC and OIL) should be based on the long-run
average
production cost of gas from the South Bassein (free) gas field, and proposed a
price of Rs
1500 per 1000 m3. This price should ensure producers a 15% rate of return on
investments;
(b) prices to consum ,rs should be based on the economic cost of the marginal
replacement fuel.
The question of ti ie appropriate ga;, price then boils down to the definition of
the marginal
replacement fuel. The BICP based its recommcndavion on the assumption that gas
should
primnarily be used to replace costly tradeable oil products, wherever this was
technica-lly
feasible. Annex 2.4 ..lustrates this approach. It is based on the Govemment's
projections of
gas use in the western and northern regions in 1995/96. Table 2.5 illustrates the
relative
Table 2.5 Comparison of Domestic and International Prices for Selected Fuels, 1991
US DLar5
Fuel Type of Use Unit Ex Refinery Price Wltolel CIF
Price Ratio of Whoksaek
Ex Pithead Price Price to CIF Prices
Naphtha Fertilizer metnc ton 117.0 127.5
240.0 0.53
Naphtha Non-fertilizer metric ton 117.0 206.6
240.0 0.86
.asoline MS93 metric ton 127.7 975.8
260.1 3.75
Kerosine Industrial uses metric ton 129.4 251.2
404.6 0.62
Kerosine Other uses metric ton 129.4 161.8
404.6 0.40
Diesel oil I ISD metric ton 123.4 282.8
3523 0.80
Fuel oil Fertilizer metric ton 83.4 91.0
144.0 0.63
Fuel oil Non-fertilizer metric ton 83.4 200.0
144.0 1.39
Crude oil metric ton N.A. 108.7
125.0 0.87
Natural gas 2 1000 m3 72.1 146.6
N.A.
Coal' EGrade, ROM metric ton 10.7 28.8
51.0' 1.58
Notes: ' Wholesale prices in Bombay
Natiural gas prices refer to producer price and price alcng the HBJ gas pipelne
(including taxes), respectively
XCoai price refers to coal (2330 KcAl) from the Maira mine, Chandrapur, delivered
at Bombay
Importa,d coal is estimated to have 6500 Kca.
-19-
prices of fuels competing with gas. The BICP decided on fuel oil as the marginal
replacement
fuel, and proposed that gas prices to consumers should be brought in line with the
cost of
international fuel oil prices. The Govemment has decided to implement this volicy
over a
three year period starting July 1, 1991. In the first year gas prices (at landfall
points) will be
raised to Rs 1550 per 1000m3; in the second year to Rs 1650 per 1000m3; and in the
third year
to Rs 1750 per 1000m3. At the end of the third year gas prices will be raised to Rs
1850 per
10o0m3.
(c) the committee recommended that Gas Authority of India nimited (GAIL) should be
allowed
a margin of RS 850 per 1000m3 for transport and distribution costs. This was the
recom-
mended price for all consumers along the HBJ pipeline regardless of distance from
the
supply point of the pipeline at Hazira.
(d) the difference between the producer price and the prices to consumers will
accrue to GAIL;
and
(e) consumers in the North-east (Assam and Tripura) would continue to pay for gas
at a rae of
only Rs 600--1000 per 1000m3.
2.32 The proposed gas pricing policy is line with the pricing principles the
Bank has recom-
mended. The link between domestic gas prices and international fuel oil prices
eliminates much of the
arbitrariness that governs the Govemment's price setting practices by tying the
price Indian consumers
have to pay to the international market price of the marginal replacement fuel. The
Government has
agreed to discuss any proposals for revisions of this pricing policy with the Bank.
The Role of the Bank
2.33 Bank lending operations in India's , il and gas sector go back to the
late 1970s when the
development of ONGC's giant Bombay Hign o,J i. ld was first undertaken. The
projects financed from
Bank loans since then have been successfully c 't eted and have achieved their
main objectives. The first
Bank loar helped finance the Bombay High OtnI,-c Development project (Ln. 1473-1N).
This was fol-
lowed by the Second Bornbay High Offshore D"' ,.nment project (Ln. 1925-1N), the
Krishna Godavari
Petroleurni Exploration project (Ln. 2205-IN) anc aLbe Cambay Basin Petroleum
project (LLn. 2403-IN). Then,
with the rapid grow+. of oil production fromr 'torln y High and the corresponding
i sc eased amounts of
associated natural gas along with the large natusa,' .c r-served discovered at
South bassein, the Bank
shifted the emphasis u f its support to the naturail g, d ector. A need was
foreseen to come to grips with
such critical issues as gas utilization, sector plannin, :..nd gas pricing. The
Bank's first lending operation in
the gas sector was to help Finance the South Bassein C. - Development project
(Ln.2241-IN); this was
followed by the Westem Gas Development project (I i.J.9)4-IN), which is still under
implementation.
2.34 ONGC's offshore operations have grown at akn unprecedented rate and in
the process
ONGC has developed into a full-fledged production ol onmpany. Despite its rapid
growth ONGC has
been able to train and maintain i competent and dedicated staff. ONGC, however, has
one weakness
which greatly detracts from an otherwise creditable perfornance. Its poor
procurement performance,
which is also in part due to excessive bureaucratic procedures required by the
Government, causes
numerous delays which past experience has shown can add two or more years to the
projection comple-
tion date. ONGC has requested ;he Bank's support for effort^:
(a) to streamline its pro.urement procedures and practices; and
(b) to provide project management training and guidelines including project
coordination.
- 20 -
In parallel with the appraisal of this project, the Bank is working closely with
ONGC on the above two
objectives.
2.35 T'i; BANK"' laNDoINC STRArhC;Y. The Bank supports the Covernment's
efforts to
(i) climinate ihe flaring of associated g is;
(ii to accelerate the development of gas markets in India and ensure that gas is
used efficiently;
and
(iii' to tully develop India's gas resources.
Apart from eliminating the wasteful flaring of gas, the most pressing need in the
years ahead is develop-
ment of gas markets in line with the existing gas production potential. Thus, in
parallel to its ongoing
support for gas projects with ONGC and OIL, the Bank increasingly seeks to support
GAIL's efforts to
expand the existing gas mnarkets.
Lessons Learnt From Previous Bank Operations
2.36 Expeiencce with the implemertation of gas projects in India has shown a
critical need to co-
ordinate the development of gas fields and gas mnarkets. The excessive flaring of
gas in the Bombay High
oilfield is largely the result of delays in the development of gas markets (in
particular the identification of
'fall back' consumers) and the lack of investments in pipelines and other
infrastructure facilities. To ensure
that gas will be used efficiently under the proposed project, the marketing plans
for gas have been re-
viewed with the Gas Authority of India Ltd., fall back plans for the allocation of
gas have been drawn up
in case sonme users are unable to utilize their gas allocations and a body will be
set up in the Department of
Petroleum and Natural Gas that will monitor progress in the implementation of gas
projects as well as of
projects that will utilize gas
2.37 Several projects with ONGC have taken longer to irrnA!ement than
anticipated at appraisal.
ONGC's complex decision making structure has been a major cause of these delays.
ONGC has requested
the Bank's assistance in streamlining its procurement and project implementation
organization.
III. THE OIL AND NATURAL GAS COMMISSION
Introduction
3.01 The Oil and Natural Gas Commission (ONGC) will be the beneficiary of
the proposed
project. ONGC was established by the Government in 1959 as a statutory body to
plan, promote, organize
and implement programs for the development of oil and natural gas resources and the
sale of oil and
natural gas products. ONGC, which is fully owned by the Government, now shares this
mission with
several other publicly-owned corporations. About 10% of India's oil and gas output
is produced by Oil
India Ltd. (OIL), whose operations are concentrated in India's northeastem region,
mainly Assam, and
Rajasthan. Refining of crude oil and the marketing of oil products is in the hands
of six refinery and three
marketing companies. With a market share of almost 50% and six refineries, the
Indian Oil Corporation
(IOC) is India's largest refinery and marketing company for oil products. The
marketing of natural gas is
in the hands of the Gas Authority of India Ltd. (GAIL). All of these corporations
report to the Ministry of
Petrolcum and Chemicals. All major investments in the oil and gas sector have to be
approved by the
Cabinet Committee on Economic Affairs following a recommendation by the Public
Investmer; Board on
which all concerned ministnes as well as the Planning Commission are represented.
Decisions on the
-21 -
pricing of oil and gas products are made by the Cabinet based on reLconunenddtions
Of the Mfililstrv ef
Petroleum and Chemicals and inter-ministerial consultations.
Organization and Management
3.02 The 1959 ONGC Act provides that the Commission shall coonsist of a
Chairmanii and iot les'i
than two, but not more than eight Members. Members are appointed by the Government
for ternis not
exceeding five years and are eligible for reappointment. The conmmission sets
policies, manages the
activities, and develops plans and budgets for ONGC. All decisions must be approved
by a majority of
Members. At present, the Commission consists of the Chairman and six Members from
within ONGC and
two Fart-time Members representing the Ministry of Finance and the Ministry of
Petroleum and Chemi-
cals. An Executive committee consisting of the Chairman and the six ONGC Members
oversees ONGC's
day-to-day operations.
Institutional Issues
3.03 GREATER MANAGERIAL EFFcCENcY. In 1986, ONGC's oard reorganized the
activities of the
Commission along functional lines and regions. The objective of the reorganization
was to improve the
operational performnance, raise accountability, and achieve greater coordination
between functional
groups. Six regional 'business centers' were established that integrated all
activities of each region (Annex
3.1). Each business center is headed by a regional director. Within each business
center, staff is organized
along functional lines (e.g., exploration, development) in the form of business
groups. ONGC has set up
eight institutes with the aim of providing technical support and training to the
staff in the business groups
in each regional center. Each member of the Commission is in charge of one of the
regional centers. As a
result of this reorganization ONGC has been in a better position to deal with the
strains caused by the
rapid growth of its operations. Over the past ten years, ONGC was able to increase
oil output by almost
15% per year while keeping the growth of its staff to 1% per year.
3.04 GREATms AUroNomyc. As a statutory body, ONGC's room for tak"nG
decisions is constrained
by Govemment prevailing policies and procedures. In order to reap the full benefits
of its efficiency
improvements, ONGC uses Memoranda of Understandings with the Government (MOUs) to
define its
responsibilities vis-a-vis the Government, to minimize Government interference in
its day-to-day opera-
tions and to accelerate Govemment approvals. ONGC signed the first MOU with the
Ministry of I'etro-
leum and Chemicals in 1986. The MOU spelled ou. performance targets and steps the
Government was to
take to speed up approvals. Subsequent MOUs extended ONGC's autonomy, and in 1990
the Government
granted ONGC far-reaching autonomy over its foreign exchange budget. ONGC can now
spend 75% of its
approved annual foreign exchange budget; the remaining 25% will be released by the
Government after
ONGC provides the required detailed information. In many respects, ONGC's autonomy
is now compa-
rable to that of other public sector corporations.
3.05 GREATER INVOLVEMENr OF nTE PRIVATE SECrOR. In addition to attaining a
greater measure of
autonomy in its decision making, ONGC is relying increasingly on private sector
companies for the
expansion of its operations. In addition to contracting out services to Indian and
foreign companies which
were originally provided by ONGC's staff, the Government is relying increasingly on
international oil
companies in the exploration of oil and gas resources.
3.06 DIvTrErRE. ONGC uses not only the services of existing domestic private
and public sector
companies, it also assists former employees in setting up cooperatives and joint
ventures with foreign
companies. ONGC's main areas for divestiture involve activities of a highly
technical nature. A: presen1t,
there are about 40 privately owned specialized companies of which ONGC uses
regularl,y about 25. They
include charter hiring of drilling rigs; helicopter, marine and diving services;
operation and maintenance
of installations and vessels; soil investigation, surveys, well logging and
production testing. Nlost of these
- 22 -
services were originally procured from foreign sources. Orders to local privately-
owned companies have
increased from Rs 1270 million (US$71 million) in 1980/81 to Rs 9,900 million
(US$560 million) in 1989/90.
3.07 ROLE OF INTERNATONAL OIL COMPANTES. In the early 1980s, the Govemrnment
adopted a policy
of inviting international oil companies to explore for oil on a sole risk basis.
Under this arrangement oil
companies commit themselves to a program of exploration work in certain
geographical areas. They are
under an obligation to finance and carry out this program within a certain tirne
frame, in exchange for a
share of their output if hydrocarbons are found.
3.08 Up to now, there have been three "rounds of offerings of exploration
acreage". The first two
rounds mnet only with limnited success. The industry felt that the terms of the
production sharing contracts
were not competitive and the blceks offered were not sufficiently prospective. In
the first round (in 1980),
the Government offered 15 onshore and 17 offshore blocks. Only four international
companies submitted
bids for two blocks and only one contract was signed. In the second round in 1982,
the Government
offered eight onshore and 42 offshore blocks. No contracts were signed. For the
third round (in 1986/87),
the Government improved the terms of the contracts and offered more prospective
areas. Of the 27
offshore blocks that were offered, seven international oil companies submitted 12
bids. A fourth round is
expected to be announced by the Government before August 1991. The contractual
termns will be similar to
those of the third round. These terms are in line with international practices.
Despite the lack of success of
the three previous rounds, international oil companies appreciate that India is
essentially still
underexplored, particularly in technically difficult areas such as the Bay of
Cambay, Kutch and the
possible western extension of Bombay High in deeper waters on the continental shelf
and slope. The
fourth round should therefore result in a substantial number of bids.
Accounting, Management Information and Auditing
3.09 ONGC keeps its accounts in accordance with international accounting
practices. In 1986,
ONGC adopted the successful efforts method of accounting (Annex 3.2) to cost its
exploration and drilling
operations - a practice followed by most international oil and gas companies.
ONGC's accounting
system, which is computerized, meets the requirements for financial accounting,
budgetary control and
cost and mnanagement accounting. ONGC prepares detailed rolling budgets that are
largely based on
physical performance targets (million tons of oil produced, meters drilled, etc.)
for each of its operating
units. Since achievement of the agreed physical performance targets remains the
paramount objective of
ONGC's management, the budget system lacks sufficient orientation towards cost
control and improving
efficiency. It also makes it difficult to respond to changing circumstances. '
"anges in performance targets
frequently require ministerial or cabinet approval, particularly when foreign
exchange expenditures are
involved, resulting in delays in implementation of corrective measures. ONGC is
aware of this and is
introducing changes that will make the budget a more effective tool for enhancing
efficiency. Long term
financial planning is currently only carried out in conjunction with the
Government's five year plans, but
steps are being taken to prepare rolling five year financial projections on an
annual basis.
3.10 Over the past two years, ONGC has built up an elaborate management
information system
which makes it possible for management to assess ONGC's operational performance
through detailed
monthly reports and other reports. ONGC is in the process of computerizing the
system by establishing
satellite linkages between headquarters and its regional centers.
3.11 ONGC's accounts are audited annually by the Comptroller and Auditor
General of India.
The audit is normally completed by November, after which the accounts have to be
submitted to Parlia-
ment for approval. ONGC's internal auditors carry out a continuous audit during the
year, while the
Corporate Management Group undertakes management audits on a regular basis. The
audit arrangements
are satisfactory. ONGC has agreed that its annual accounts, including the audit
report of the special
account and the statement of expenditures for the project, if any, will be made
available to the Bank
- 23 -
Table 3.1 ONGC: Summary of financial results, 1986 to 1990
Fiscal yr ending March31 1986 1987 1988 1989 1990
Volumes sold: Crude 0hi (mill tons) 26 28 27 29 30
Natural Gas (MMCM) 3,3( 5,042 5,873 6,932 8,610
LPG and NGL (mill. tons) 0.4 0.6 0.7 1.1 1.3
-_ -Rs biDion -
0i1 revenues 38.2 48.0 49.5 53.7 63.2
Otherrevenues 5.7 8.3 11.6 16.0 18.1
Total Revenue 43.9 563 61.1 69.7 81.3
Royalties, excise cess and sales tax 12.3 21.8 24.6 28.1 37.2
Total revenues retained 31.1 34.5 36.5 41.6 44.1
Total operating expenses 10.7 12.2 15.3 19.9 22.9
Operating income 20.4 22.3 21.2 21.7 21.2
Les: Interest (net) 1.6 1.2 0.7 0.8 1.0
Corporate taxes 6.0 6.2 5.4 4.9 4.0
Net operating incorme 12.8 14.9 15.1 16.0 16.2
Dividends 0.3 0.4 0.4 0.5 0.5
Net income retained 1Z5 14.5 14.7 15.5 15.7
Key financial ratios
Operating ratio (revenues retained) (Percent) 34 35 42 48 52
Return on total equity (Percent) 32 27 21 19 16
Return on average net fixed assets (Percent) 31 28 23 21 19
Return on capital employed (Percent) 22 20 17 16 14
Dividend as Percent of total equity I 1 1 1 1
Current Ratio (times) 1.3 1.5 1.6 1 8 1.7
L.ong-term debt to total equity ratio (times) 0.5 0.5 0.4 0.5 0.5
Debt service coverage (times) 4.8 1.9 3.6 5.4 2.8
Self financing ratio (Percent) 83 40 149 172 81
Source: ONGC
within nine months of the end of the fiscal year. ONGC has further agreed that it
will submit unaudited
financial statements (income statements, funds flow statement and balance sheet) to
the Bank within six
months of the end of the fiscal year.
Financial Performance
3.12 The financial performance of ONGC over the past ten years is
sunmmarized in Annexes 3.3 -
3.6. An overview of its performance during the past five years is provided in Table
3.1. The table shows
that ONGC's operations grew rapidly during the past ten years. Sales of crude oil
increased from 9 million
tons in 1981 to 26 million tons in 1985 and 30 million tons in 1990. Sales of
natural gas increased more
gradually from 972 MMCM in 1981 to 8610 MMCM in 1990, an average increase of about
27% a year. Total
revenues increased from Rs 4.5 billion in 1981 to Rs 81.3 billion in 1990, an
average increase of 38% a year.
The proportion of oil revenues in total sales has declined from a peak of 88% in
1985 to 78% by 1990.
3.13 ONGC's operating ratio has increased steadily since 1986, and
returns on equity and net
fixed assets in operation have declined since 1986. This is to a large extent due
to the Government's
decision not to raise ONGCs net retention price of Rs 967.85 per metric ton (mt) of
crude oil which has
been aimde at this level since July 1981 in spite of increasing operating costs,
rising inflation and a steady
devaluation of the Rupee. Similarly for natural gas the basic price of Rs 1,400 per
1000 m3 has been in
effect since 1985. Taking into account the devaluation of the Rupee over the past
ten years, the net reten-
tion price for oil has declined from US$123 per mt (equivalent to US$17 per bbl) in
1981 to US$54 per mt
(equivalent to US$7 per bbl) in 1990. In spite of the lack of adjustments in the
producer prices for oil and
- 24 -
gas, ONGC's financial position has remnained sound. All its financial ratios agreed
with the Bank under
previously approved loans have been considerably exceeded.
3.14 Since 1984, ONGC's net internal cash generation has exceeded its
total capital expenditire.
ONGC's self financinig ratio averaged 82% during the Sixth Five Year Plan (1981-85)
and 105% during the
Seventh Plan (1980-90). The high self-financing ratios reflect the rapid growth of
oil output from the
Bombay High oilfield, where production costs are lower than in other Indian fields,
a reduction of corpo-
rate taxes and ONGC's policy of paying rather modest dividends.
Meeting ONGC's Foreign Exchange Requirements
3.15 ONGC's recourse to long-term borrowings has been dictated by the
Ministry of Finance's
requirement that all foreign currency expenditure on capital projects be financed
either directly or through
the Government from official sources. Sources, timing and currencies of foreign
loans are decided by the
Ministry of Finance to ensure consistency with India's overall borrowing strategy.
Currently, about 30 -
40% of ONGC's capital expenditure and 10 - 15% of its cash operating costs require
foreign exchange.
These shares have declined over the past few years as a result of ONGC's
indigenization policy. Table 3.2
provides an overview of ONGC's sources of finance.
3.16 Over the past ten years, some 42% of ONGC's total foreign exchange
requirements (includ-
ing capital expenditures, operating costs and debt service requirements) were met
from the country's free
foreign exchange resources. The remaining 58% of the total foreign exchange
requirenents were secured
through direct borrowing from foreign private sources or indirectly from loans
(mostly from the World
Bank) on-lent to ONGC by the Government. During 1985-90, ONGC's foreign borrowing
amounted to Rs
55.4 billion (about US$ 3.2 billion) of which 88% consisted of long term syndicated
loans and issues of
securities, both predominantly US Dollar denominated and arranged with the help of
US, Japanese and
Table 3.2 ONGC: Sources of Financing, 1986 to 1990
Rs billion
F-iscai years endin.g March 31 1986 1987 1988 1989
1990 Total
Funding requirements
Tota! capital e>penditures 17.36 18.96 18.96 23.29
31 00 109.57
Total debt service 4.74 13.34 7.86 6.43
13.67 46.04
Corpx)rate taxes 5.96 6.21 5.35 4.93
3.97 26.42
Inaease in working :apital 3.80 5.17 1 45 1.21
4,57 16.20
Total funding requirements 31.86 43.68 33.62 35.86
53.21 198.23
Financed by:
Net internal cash generation 28.61 30.95 33.67 39.50
41.88 174.60
Borrowings:
Domestic be-rowmngs 0.08 0.04 0.02 0.02
0.00 0.16
Foreign currency loans onlent by GOI 0.93 0.76 1.60 1.00
1.35 5.64
International capital market borrowings by ONGC 2.81 13.74 7.87 8.40
16.12 48.94
Suppliers/buyers credits ONGC 0.08 000 0.04 0.54
0.00 0Q66
Total borrowings 3.90 14.54 9.53 9.96
17.47 55.40
Total sources 32.50 45.49 43.20 49.46
59.35 230.00
Surplus 0.64 1.81 9.58 13.60
6.14 31.77
Used for: Long terrn investments 0.30 1.45 9 18 13 09
5.59 29.61
Dividends 0.34 0.36 0.40 0.51 0.55
2.16
Sourre ONGC
- 25 -
European private banks and security houses. Such wide market access enabled ONGC to
minimnize the
use of tied, market priced financing, such as export and supplier credits. As of
March 31, 1990, ONGC's
total direct foreign currency long term debt amounted to Rs 48.1 billion
(equivalent to about US$ 2.8
billion at the exchange rate then applicable), of which 71% was denominated in US
Dollar and 200% in Yen,
the remainder in other currencies. At the same date, indirect foreign currency debt
amounted to Rs 9.3
billion.
3.17 ONGC has sought to insulate itself to the extent possible from the
risks associated with its
growing foreign exchange indebtedness; it sought to diversify the currencies in
which it borrowed, and
strike a balance between fixed and floating rate borrowings; it also arranged a
number of interest rate
swaps. In 1987, ONGC prepaid some loans in order to take advantage of the drop of
interest rates in
international financial markets. However, since ONGC has no direct foreign exchange
earnings, its
options for using hedging techniques conducive to a more cost-effective liability
management are limited.
ONGC's Financial Relationship with the Government
3.18 ONGC's contributions to the Govemment's revenues are substantial. Dunng
the Seventh
Plan, ONGC contributed about R.s 16.5 billion to the budget of the Central (Rs 14.5
billion) and State
Govemment (Rs 2 billion) in the form of excise cess, royalties, duties, corporate
tax and dividends. The
Government's policy regarding producer prices for oil and gas and ONGC's borrowing
strategy have
allowed ONGC to generate substantial Rupee surpluses, which have been used for long
term investments
in public sector securities and public sector undertakings. On March 31,1990, the
total value of these
investments and loans was about Rs 35 billion (about US$2 billion). It has provided
ONGC with substan-
tial additional revenues (Rs 3,870 million in 1990).
ONGC's Operational Performance
3.19 It is difficult to compare ONGC's operational performance with that of
other national and
internationial oil companies. Unlike private intemational oil companies, whose main
objective is profit
maximization, ONGC's role is more complex. While its primary role is to explore for
and develop India's
oil and gas resources, ONGC remains an important vehicle for raising revenues in
domestic markets and
foreign exchange loans in intemational financial markets. ONGC has also emerged as
a major institutional
investor in non-oil and gas related activities in India. To foster this role, the
Government has kept pro-
ducer prices well in excess of ONGC's production costs and, more recently, reduced
the corporate tax rate
to compensate for inflation and the devaluation of the Rupee. Administered prices
for crude oil and gas
have protected ONqGC from fluctuations of oil prices in international markets and
its near-monopoly
position shelters it from competitive pressures. To ensure that ONGC operates
efficiently, the Government
monitors ONGC's operations through the physical and financial performnance targets
agreed in the annual
MOUs. Annex 3.7 provides a comparison of ONGC's performance in terms of selected
cost and other
ratios.
3.20 ONGC's production costs for cTude oil have re-rined well below the
import parity price
throughout the 1980s. In 1990, ONGC's average production costs at the wellhead were
about US$25 per
ton of oil (US$3.42 per barrel) and US$48 per 1000 m3 of gas. Offshore production
costs were US$22 per
ton for oil (US$3.0 per barrel) and US$38 per 1000 m3 of gas. After declining
steadily until 1988, ONGC's
production unit costs in 1989 and 1990 and operating expenses in 1990 increased
considerably. This was
due to several factors: rising inflation, the devaluation of the Rupee, higher
financing costs a less success-
ful exploration program in these years, which increased the level of amortization
and ONGC's costly
indigenization policy (para. 3.06). In spite of these cost increases, ONGC's
production costs are rough)v in
line with those of oil and gas companies of this size. Its reserve to production
ratios of about 22 for oil and
41 for gas remain at acceptable levels.
- 26 -
3.21 There is, however, room for efficiency improvements. With a staff of
about 47,000, ONGCs
production of about 17 bbl of oil equivalent/day per employee is relatively low by
international stan-
dards. Its average drilling cost has declined to about US$ 541 per meter in 1990
but remains high by
international standards. Continuous involvement of the Bank with ONGC has, over the
years, led to
improvements in operational efficiency as well as policy changes with respect to
increased involvement of
the private sector. ONGC has recently requested the Bank to review project
implementation arrangements
and its reservoir management. As ONGC owns most of its field service equipment,
compared to other oil
companies, the Bank has recommended improving efficiency by farming out services to
both domestic
and foreign specialized firms. This should lead to a further reduction of drilling
cost, although the prefer-
ence of domestic suppliers should be gradually eliminated. The Government's
decision to invite interna-
tional oil companies to explore for oil and gas in India will expose ONGC to state-
of-the art exploration
techniques and efficient operations, particularly if ONGC enters into a production
sharing agreement with
the foreign oil companies. While ONGC's mnanagement favors close interaction with
the private sector,
particularly through joint ventures, privatization of ONGC would be politically not
feasible. Bank support
for the Government's policy to increase ONGC's exposure to a more competitive
environment extpnd its
autonomy and shift the emphasis from attaining quantitative targets to efficiency
improvements, would
achieve similar objectives.
Investment Program
3.22 ONGC's level of capital expenditure almost doubled from Rs .58
billion during the Sixth
Plan (1981 - 1985) to Rs 110 billion during the Seventh Plan (1986-1990). Output
from the Bombay High
oilfield accounts for about 60% of indigenous oil production output has reached a
plateau and will decline
by about 10% a year unilss steps are taken to arrest the decline. ONGC's investment
program, therefore,
contains a large financial provision for sustaining oil production action in the
Bombay High field. This,
together with the development of recent discoveries, is expected to offset the
inevitable decline of produc-
tion from existing fields. Investments during the Eighth Plan (1991-1995) are
expected to amnount to about
Rs 200 billion in constant terms (about Rs 222 billion in current terms), of which
the proposed project
Table 33 ONGC's Investment Program, 1991 to 1995
R.- billion
Fiscal yearending March31 1991 1992 1993 1994 1995 Toal
Ongoing proects 63 1.8 1.8 0.0 C.0 9.9
Proposed projects 1.6 9.1 37.9 33.8 25.4 107.8
Other capital acquisition 5.6 6.1 1.5 1.5 1.3 16.0
Total capital acquisition 13.5 17.0 41.2 35.3 26.7 133.7
Surveys 1.4 1.3 !.0 1,0 1.1 5.8
Exploration drilling 10.7 10.1 5.3 4.0 4.7 34.8
Development drlling 5.3 6.5 4.0 4.4 2.5 22.7
Research and development 0.6 0.9 0.7 0.7 0.5 3.4
Total investments (1991 prices) 3;.5 35.8 52.2 45.4 35.5 200.4
Total investments (current prices) 31.5 37.8 57.5 52.2 42.9 221.9
of which foreign exchange expenditure 10.1 12.5 31.6 29.8 22.8 106.8
Project cost 1.3 1' 0 20.5 15.2 54.0
Percent of total capital expenditure 4.0 3 0 39.0 35.0 24.0
Notes: 'Includes price escalation Rupees 62 billion of project expenditure vill be
spent in 1996
Proiect cost excludes equipment and services for reservoir management as they we
considered
to be operstional expenditures
Source ONGC and Bank staff estimates
-27-
Table 3.4 ONGC Financial Projections, 1991 to 1995
Fiscalyor ending AMarch 31 1991 1992 1993 1994
1995
Volumes sold Crude ol (milL tons) 29.4 31.1 31.8 38.0
43.5
Natural gas (MMCM) 9,875 11,170 15,527 19,211 20,506
LPG, NGL, C2, C3 (mill. tons) 1.5 1.9 2.1 2.2 2.2
--- Rs biUion- -
Oil revenues 62.1 65.7 67.1 80.4
92.0
Other revenues 21,7 25.1 3Z5 39.4
41.8
Total Revennes 63.7 90.8 99.6 119.8
133.8
Royalties, excise cess and sales tax 37.4 40.0 45.1 51.8
58.8
Total revenues retained 463 50.8 54.5 68.0
75.0
Total operating expenses 31.2 29.9 30.0 38.6
41.5
Operating income 15.1 20.9 24.5 29.4
33.5
Less: Interest (net) 2.0 1.7 3.5 6.9
9.3
Corporate Taxes 3.0 4.2 4.9 5.9
6.7
Net operating irpcome 10.0 15.0 16.1 16.6
17.5
Dividends 1.0 1.1 1.3 1.4
1.6
Net income retained 9.0 13.9 14.8 15.2
15.9
Key financial ratios
Operating ratio (revenues retained) (percent) 67.0 59.0 55.0 57.0
55.0
Return on total equity (percent) 11.0 13.0 14.0 15.0
16.0
Returnonaveragernetflxedassets(percent) 11.0 13.0 a2.0 12.0
12.0
Return on capitalemployed(percent) 9.0 11.0 10.0 10.0
10.0
Dividend as percent of total equity (percent) 1.0 1,0 1.0 1.0
1.0
Current Ratio (times) 1.4 1.5 1.6 1.7
1.7
Long-term debt to total equity ratio (times) 0.7 0.7 0.9 0.9
1.0
Debt servicecoverage(tirnes) 3.7 4.2 2.5 1.9
2.0
Self financing ratio (percent) 179.0 100.0 36.0 45.0
78.0
Source: ONGC and Bank estimates
would represent about 24%. ONGC's investment program is summarized in Table 3.3,
and details are
given in Annex 3.8. The bank supports the objectives and strategy reflected in the
proposed investment
program. ONGC has agreed to review its investment program annually with the Bank
together with the
implications of this program on its financial position.
Financial Prospects
3.23 Over the next five years, ONGC is expected to continue to grow
rapidly. Table 3.4 summna-
rizes ONGC's projected financial performance up to 1995. Details are given in
Annexes 3.9 to 3.13. The
financial projections are based on the assumption that the retention price for
crude oil and gas will remain
unchanged. The projections show that, in spite of rising inflation rates and a
gradual devaluation of the
Rupee against the US Dollar and other currencies, ONGC will remain financially
viable. However, ONGC
will no longer generate sufficient resources to fully finance its investment
program, working capital and
debt service, but it is expected to have sufficient borrowing capacity to
supplement its own resources and
to raise foreign exchange. Also, unless the Government decides to raise producer
prices, it would need to
divest part of its non-oil related investment portfolio. In order to ensure that
ONGC continues to remain
financially viable, ONGC has agreed to maintain its cutrent ratio at 1.2 times or
higher, its debt semice
ratio at 1.5 times or higher and its long term debt to equity ratio at not more
than 1.5. In addition to the
technical risks associated with oil and gas production, there are, however, a
number of factors which
could easily affect ONGC's financial position and its capability to implement its
investment program.
- 28 -
First, with the exception of the loans from multilateral donors onlent by the
Government, ONGC carries
the foreign exchange risk on most of its long term debt. Its debt profile is rather
uneven, and debt service
is projected to double in Rupee terms by 1993 from its 1991 level and to triple by
1994. The Rupee has
depreciated by an average of about 12% against foreign currencies from March to
November 1990. An
accelerated devaluation or an increase in local inflation in excess of the rates
projected would weaken
ONGC's financial position and may torce the Government to increase producer prices.
The second uncer-
tainty relates to ONGC's and the Government's ability to raise foreign exchange.
Financing Requirements
3.24 Table 3.5 shows the estimated financing requirements during the
period 1991 to 1995.
During this period, ONGC is expected to maintain an average self-financing ratio of
about 78%. In the case
of ONGC, this relatively high level of self-financing is crucial as a cushion
against devaluation, inflation
and for maintaining its sound credit rating. It is estimnated that, during the
period 1991-1995, ONGC
would need about Rs 203 billion (US$ 9.4 billion) in foreign exchange, about US$
4.9 billion (52%) to cover
the foreign exchange cost of its capital expenditure program and US$4 billion
equivalent (43%) to cover
debt service, the balance (US$ 0.5 billion) being for operating costs. Of this
amount about US$110 million
has been already arranged through previous loans and about US$400 million from
recent bond issues in
Germany and Japan. An estimated US$2 billion is expected to be arranged in the
context of this project.
ONGC plans to raise directly an additional US$3.7 billion (equivalent) from
external sources, primarily
from export credit agencies and suppliers. The balance of about US$3.2 billion
would need to be provided
by the Government. Given India's need to sustain investments in oil and gas
exploration, it is expected
that the Governm ent will give ONGC priority in its allocation of free foreign
exchange. There is consider-
able risk that ONGC and the government will be unable to mobilize all of the
projected foreign exchange
requirements. If this should happen, ONCC would most likely delay investments in
the Bombay offshore
region, particularly in Neelam and Gandhar, and India's oil production would be
substantially lower than
currently projected.
Table 3.5 ONGC: Sources of Financing, 1991 to 1995
Ks .nilion
Fiscal years ending March 32 1992 1992 1993 1994 1995 Total
Plercent
Funding requirements
Total capital expenditures 31.5 37.8 57,5 52.2 42.9 221.9 63
Total debt service 10.8 10.4 18.9 287 29.1 979 28
Corporate taxes 3,0 4.2 4.9 5.9 6.7 24.7 7
Increase in working capital (8.5) 2.7 5.0 6,0 4.4 9.6
Total funding requirements 36.8 55.1 86.3 92.8 83.1 354.1 100
Financed by:
Net internal cash generation 42.5 48.' 51.3 60.9 65.0 268.0 68
Borrowings
Foreign currency loans onlent by GO! 1.0 1.3 6.7 7.3 5.1 21.4 5
Export credits and
other foreign currency borrowing 13.4 13.6 27.7 29.1 23.6 107.4 27
Total borrowings 14.4 14.9 34.4 36.4 28.6 128.8 32
Total sources 56.9 63.2 85.7 97.3 93.6 396.8 100
Surplus 20.1 8.1 (0.6) 4.5 10.7 42.7
Used for Long term investments 19.1 7.0 (1.9) 3.1 9.0 36.3
Dividends 1.0 1.1 1.3 1.4 1.6 6.4
Source ONGC and Bank estniate
- 29 -
3.25 ONGC's external resource mobilization during the 1991-95 period will
have to be carried
out und2r substantially less favorable conditions than in the preceding period and
its strategy will,
therefore, have to be adjusted accordingly. In the fall of 1990, reacting to
India's deteriorating external
position, Moody's revised India's (and ONGC's) credit rating from A2 to BAAL. Other
credit rating
agencies soon followed suit. By end-May 1991, S&P's implied rating of India's long-
term debt was further
reduccd to BB+. As a result, India's access to external finance has narrowed
substantially. Consequently,
ONGC's resource mobilization efforts will have to be directed increasingly towards
bilateral development
assistance, multilateral and bilateral institutions as well as suppliers and export
credit agencies (ECAs).
The latter sources, which ONGC has tapped in the past only in a limnited way, can
still offer substantial
amounts of tied long term credit.
3.26 Apart from the Bank's direct involvement in motilizing the resources
for ONGC's invest-
ment program, the proposed project focuses on improving ONGCs overall project
implermentation
capabilities, including strengthening of relationships with export credit agencies
and other international
financial institutions. The financial covenants are designed to ensure that ONGCs
overall financial
viability will be maintained. The growing complexity of ONGCs overall future
resource mobilization
requirements (over and above the proposed project) as well as the need to continue
its efforts to optimize
its liability management, dictate that ONGC strengthen its capacities in this area.
To that end, ONGC has
agreed that it will retain a financial advisor who will develrp the necessary
strategic resource mobiliza-
tion and asset and liability management plans for ONGC and assist in their
implementation, including
the negotiation of the various cofinancing facilities envisaged in the proposed
project.
IV. THE PROJECT
Background
4.01 The bulk of India's gas reserves is located in its Westem region, one
of India's most indus-
trialized areas. Close to 75% of total gas reserves are concentrated in the Bombay
offshore area. About
one-third of these reserves consist of associated gas. Unlike free gas, whose
production can be controlled
quite easily, the supply of associated gas depends on such factors as the rate of
oil production, the geologi-
cal characteristics of the reservoir and the age of the oil field. Most gas
consumers prefer a stable and
assured supply. When associated gas cannot be reinjected, oil companies tend to
flare it, unless they are
able to identify a market that Is willing to take whatever quantities of gas become
available or even out
fluctuating supplies of associated gas with supplies of free gas.
4.02 The Bombay High oil field is India's largest source of oil and
associated gas. In 1989/90 it
produced 20 million tons of oil per year and almost 30 million cubic meters (MMCMD)
of gas per day.
This corresponds to more than 60% of indigenous oil production and almost 7/0% of
total gas production.
ONGC did not anticipate that gas production would increase quite as rapidly, and
did not make the
necessary investments for bringing the additional gas supplies ashore. The steep
increase in gas supplies
is primarily the result of a drop in reservoir pressure, which was caused by delays
in the implementation
of measures, such as water injection, to maintain this pressure.
4.03 To slow the increase of oil imports ONGC has decided to implement a
program that would
increase the oil and gas production in the Bombay High oil field and simultaneously
eliminate gas flaring.
Under this program, ONGC is currently develuping additional oil production from the
L-III reservoir in
the south sector of the Bombay High oil field through infill drilling. This will
require drilling of 78 produc-
tion and water injection wells. In addition to the production and water injection
wells, to be drilled
through eight well platforms, the program will require additional process platforms
with intra-field and
trunk gas pipelines. ONGC estinmates that this will yield an additional 40 million
tons of crude oil and 18
billion cubic meters (Bem) of associated gas. The program includes also similar
investments to develop the
- 30 -
L-1l reservoir in the northern sector of the Bombay High oil field. This will be
achieved by drilling 42
production and water injection wells. In addition to the production and water
injection wells, to be drilled
through five well platforms, ONGC plans to install a processing platform, with
intra-field gas pipelines, as
well as a gas feeder line to the Bombay High - Uran trunk pipeline. ONGC estimates
that these wells will
yield an additional 16.5 million tons of oil and 8 Bcm of associated gas. The Gas
Flaring Reduction project
includes those components of ONGC' wvelopment program for the Bombay High oil
field that are
installed primarily for the recovery and transmission of gas that would otherwise
be flared.
4.04 PNoJEcr DESI(;N. The basic design of the gas production and recovery
components of the
project is based on an optimization study for the Bombay High oilfield, which was
carr;-d out by Engi-
neers India l td. (EIL) in 1989. The design of the pipeline system is the result of
extensive discussions with
ONGC and the Gas Authority of India Ltd. The least-cost option which calls for
taking all the gas that is
being tlared in the Bombay High oilfield to t:le Bombay area market cannot be
implemented due to the
limited capacity of the Uran gas terminal which cannot be increased beyond 16
MMCMD. Construction of
another terninal at Usar to process oil and gas is being studied. However such a
terminal is likely to face
stiff opposition from environmental groups. In addition, both ONGC and GAIL expect
that land acquisi-
tion difficulties would extend the completion of the new terminal well beyond the
date at which the
proposed project would remain viable. Thus, ONGC decided to design a pipeline
system that would take
the additional gas from the Bombay High oilfield to the other available landfall
point, Hazira. From
Hazira the gas will be distributed through the Hazira-Bijaipur-Jagdishpur (HBJ)
pipeline to consumers in
Gujarat, Rajasthan, Uttar Pradhesh, Harayana and New Delhi. Annex 4.1 describes in
more detail the
rationale for the layout of the proposed additional pipeline.
Project Objectives
4.05 The principal objectives of the project are:
(a) to eliminate the flaring of associated gas in the Bombay High oil ficid,
improve the manage-
ment of the Bombay High Reservoir, in order to arrest the decline of oil production
and
optimize the ultimate recovery of hydrocarbons;
(b) to reduce energy shortages and improve efficiency of energy use in India's
Western Region;
and
(c) to promote a greater involvement of the private sector in the oil and gas
industry in India.
Project Description
4.06 The project is designed to transport up to 25.3 MMCMD of additional gas
from the Bombay
High oil field to lJran and Hazira. These facilities will eliminate the flaring of
gas in the Bombay High oil
field and help to meet the growing demand for natural gas in the Bombay area and
along the HBJ pipeline
in Northwest India. The project includes an additional trunk gas pipeline from
South - Bassein to Hazira
and the expansion of the terminal facilities at Hazira. These two components will
increase the existing
transmission capacity from Bombay offshore fields, particularly Bombay High and
South Bassein, from 32
to 61 MMCMD of gas and will make it possible to segregate the transmission of sweet
and sour gas. To
ensure that gas consumers in the Bombay area receive the volume of gas committed to
them, the project
also includes a pipeline from the south sector of the Bombay High oil field to the
Heera oil field where it
connects with the Heera - Uran trunkline. This additional pipeline will supplement
gas deliveries to Uran
by an additional 4 MMCMD. (Figures 1 and 2 in Annex 4.1 show the capacities of the
various gas pipe-
lines and the expected flows of gas through the pipeline system over the life of
the project).
4.07 The project consists of the following components, described in detail
in Annex 4.2:
-31 -
(a) Construction of a process platform, SHG, in the southern sector of the Bombay
High oil field
with a processing capacity of 100,000 barrels (bbl) of oil per day, 15 MMCMD of gas
and
140,000 bbl of water per day. The platform includes a 78 kilometer (km) pipeline
with a
diameter of 28 inchcs to the BPB platform at South - Bassein.
(b) Construction of a process platform, NQP, in the northern sector of the Bombay
High oil
field, with a processing capacity of 60,000 bbl of oil per day, 6.8 MMCMD of gas
and 90,000
bbl of water per day. The platform includes a 30 km pipeline with a diameter of 18
inches to
the BHN - Uran gas trunk pipeline.
(c) Modifications of existing platforms.
(d) Construction of a 142 km gas pipeline, (26 - 36 inches) from the existing
process platform,
ICP, in the southern sector of the Bomoay High oil field to the Heera - Uran trunk
pipeline.
(e) Construction of a 255 km trunk gas pipeline (42 inches) from South - Bassein to
Hazira.
(f) Expansion of the existing Hazira gas terminal.
(g) Engineering, project management and other implementation services.
(h) Implementation of a package of measures, in the Bombay High oilfield, required
by proper
reservoir management practices.
(i) Reservoir performance and management studies and training.
(j) Implementation of a package of measures to reduce the environmental risks and
enhance the
safety of offshore operations.
4.08 The project will substantially increase the availability of gas in the
Bombay area, in Hazira
(Gujarat) and along the HBJ gas pipeline, which brings gas from India's west coast
to industrial areas in
Rajasthan, Harayana, Uttar Pradesh and New Delhi. To offset a declire in the
availability of associated
gas, the project will give ONGC the flexibility to bring additional free gas from
the South Bassein gas field
ashore. This will provide consumers with an assured supply of gas, which will
replace naphtha in fertil-
izer production, middle distillates in the generation of peak-load power and coal
in base-load power
generation. The project will also contribute to an increase of oil output in the
Bombay High oilfield.
Implementation
4.09 ONGC will be responsible for the implementation of the project. During
all phases of
project design and implementation, ONGC will be assisted by Engineers India Ltd.
(EIL). EIL is the largest
and most experienced engineering firmn in the oil and gas production and processing
field in India. EIL, in
tum, has collaboration arrangements with experienced international engineering
firms. ONGC requires
that all its offshore structures and facilities, including pipelines, meet
international standards and receive
certificates to that effect from recognized certification companies. These services
will be provided by
Engineers India Certification Agency.
4.10 The organizational arrangements for the implementation of the project
are shown in Annex
43. Because of the large size of the individual project components, ONGC is
managing the implementa-
tion of the project in terms of four separate subprojects: (a) facilities in the
northern sector of the Bombay
High oilfield; (b) facilities in the southern sector of the field; (c) construction
of the pipelines extending
from platform ICP (in the Bombay High oil field), to the Heera oil field and from
the South - Bassein gas
- 32 -
field to the Hazira gas terminal; and (d) the expansion of the Hazira gas terminal.
Fach of these
subprojects will be headed by a project manager with a separate task force and
support services. The
subproject managers of project components (a), (b) and (c) will report to the
Officer on Special Duty (OSD)
(Engineering & Construction) (E&C) and that of (d) will report to the Group General
Manager (GGM)
(Hazira). OSD (E&C) and GGM (Hazira) will report to the Regional Director, Bombay
Regional Business
Center (BRBC) who will have the overall responsibility for the implementation of
the project in BRBC. To
ensure maximum coordination in the implementation of project components,
subprojects (a) - (d), in the
Bombay High oilfield, ONGC has agreed to appognt an officer (OSD) who acts as the
overall project co-
ordinator and who will be responsible for the implementation of these components.
In addition, ONGC
has agreed to establish Project Implementation Units for each of the four sub-
projects.
4.11 Implementation of the four subprojects will be the respotisibility of
ONGC's Regional Office
in Bombay. With the implementation of the Bombav Offshore projects, phase I of the
South Bassein
Developrnent project (Ln.2241-IN), and the Western Gas Development project
(Ln.2904-IN), the office has
demonstrated its ability to effectively manage the implem'entation of large-scale
offshore projects. Its
management team has been exposed to all phases of offshore development. As a
result, it has been able to
put together a well-structured organization with staff sufficiently trained to
implement this project.
4.12 To simplify procurement and reduce the risk of implementation delays,
maximum use will
be made of single responsibility turnkey contracts. The items that will be procured
under the project have
been grouped in 19 packages. With the exception of six packages for the expansion
of the Hazira gas
terminal and three packages for platform modifications, each package will be
procured on the basis of a
single responsibility turnkey contract. Under these contracts the responsibility of
the contractor extends
from detailed engineering to commissioning and final acceptance by ONGC. The single
responsibility
approach was chosen-as is the case with similar offshore and onshore work in
India--because special-
ized contractors with thc necessary experience and resources offer the greatest
chance for the expeditious
execution of contracts in spite of weather and construction risks. (The single
responsibility approach
would have been impractical for the expansion of the Hazira gas terminal, tie
platform modifications, the
environmental component and the implementation of measures to improve the reservoir
managemnent of
the Bombay High oilfield, since implementation of these components requires close
interaction with the
management of existing facilities. ONGC would be in a better position than
contractors to ensure the
timely implementation of these components).
4.13 Annex 4.4 shows the major stages of project implementation. The Bank's
staff u.:stimates that
ONGC will be able to complete the project in five years. The estimate of the Bank's
staff takes into account
ONGC's experience with the implementation of similar projects. Delays in Government
approvals, in
particular environmental clearances, difficulties in obtaining land and procurement
delays have been the
main causes of slippages in project implementation in the pist. The complet.on time
estimated by the
Bank's staff is considered realistic, particularly in view of the advanced stage of
procurement preparation.
The Bank has reviewed the engineenng design of the bid packages and found tihem
acceptable. Because of
the extreme sensitivity of the economic viability of the project to delays in
project implementation, ONGC
has agreed to arrangefor ar 'iew of its procurement andproject implementa'ion
organization, discuss
the results of this reviewv wit the Bank and implement its recommendations.
Status of Project Preparation
4.14 The project is in an advanced stage of preparation. Conceptual and
optimization studies,
which form the groundwork for the project, and basic design and engineering have
been reviewed by the
Bank and found satisfactory. Also, bid packages for procuring the major project
components have been
completed and forwarded to the Bank. These documents are technically satisfactory.
- 33 -
Environmental and Safety Issues
4.15 Offshore oil and gas operations are hazardous to the environment and
the personnel
involved. While the risks cannot be completely eliminated, they can be minimized .
While the Governmenit
has not yet adopted legislation that would govern safety concerns of oftshore
operations, 0NGCd eals
with these issues effectively through compliance with international safety
standards. With regard to the
proposed project, the Bank's environmental and safety' specialistfound that the
recovery of gas and the
transmission of gas to shore poses minimal environmental and safety risks.
Construction of the platforms
and the laying of the pipelincs will not result in any lasting disturbance of
marine life.
4.16 ENVIRONMENTAl. AND SAFFIY LECISLAnON. India has no legislation that
deals specifically with
offshore safety. In 1985 ONGC adopted a Recommended Code of Practice for its
offshore operations. This
Code is based on best practices adopted elsewhere. By following this Code, ONGC
complies with relevant
international safety standards and maritime regulations. ONGC observes all of the
safety standards for
offshore drilling and production platforms of the American Petroleum Institute and
relevant rules of the
American Bui eau of Shipping (ABS), Britain's Lloyd's Register of Shipping and
Norway's Det Norske
Veritas. Each platform is equipped with sufficient survival craft to accommodate
all of the men at work at
any time, In addition, India is a signatory to the Safety of Life At Sea (SOLAS)
convention. T'he Mercantile
Marine Department is responsible for meeting the norms established by SOLAS.
4.17 Legislation regarding the protection of the environment is contained in
the Environment
(Protection) Act of 1986. Under the Act, ONGC has agreed to comply with the spirit
of the legislation. As
part of this agreement, ONGC is required to obtain clearances for all of its
projects from the Ministry of
Environment and Forests (MOEF). Before clearing any new projects, MOEF now requires
the preparation
of environmental impact assessments, environmental management plans and disaster
maniagement plans.
4.18 ONGC's ARRANGEM1N-MS FOR ENVIRONMFNT AND SAiFEY. In order to be able to
complv with
environmental and safety regulations, ONGC has set up a Safety and Environrnent
Management Group
(SEM). The primary objective of this group is to monitor compliance with regulatory
and other require-
ments. Ihe Group provides technical advice on environmental and safety issues to
line managers. The
ultimate responsibility for the safety of personnel and environmental protection
within each region rests
with the Board member responsible for that region.
4.19 The SEM groups receive technical support from a number of Indian
organizations. The
Indian institute of Petroleum Safety and Environment Management (IPSEM; has been
set up by ONGC to
provide training in the areas of offshore safety and environmental protection. The
Institute of Engineering
and Ocean Technology (JEOT) has also been set up by ONGC to assist SEM Groups in
the safety evalua-
tions and risk assessments of oftshore operations. The National Environmental
Engineering Research
Institute (NEERI), is a public sector institute and, as such, part of the Council
for Scientific and Industrial
Research (CSIR). NEERI prepares all baseline environmental studies and
environmental impact assess-
ments for ONGC's offshore projects and operations.
4.20 ONGC's SAFETY RFCORD. The Bank's staff reviewed ONGC's accident
statistics an.1 roundl
that its performance in this area could be substantially improved. ONGC has agreed
to carry out a safety
auditfor its entire offshore operations, discuss the results with the Bank and
implement the recommenda-
tions. With regard to the proposed project, ONGC has further agreed to carry out a
safety enginee-ing
study for the existing platforms that will be linked to the facilities to be
constructed under the project, as
well as a supplemental environmental assessment disaster study for all new and
associated existing
facilities. ONGC has agreed to retrofit existing platforms linked to the project,
if necessa, y, to bring them
in line with the recommendations of the safety study. The design of the new
platforms and pipelines will
include all safety engineering aspects as well as the recommendations of the
supplemental disaster
assessment study.
- 34 -
4.21 PNoprcr RELATFI) CONSIDFRATnONS. NEERI has prepared an Environmental
Impact Assessment
report (EIA) for the proposed project components in the northem and southern zones
of the Bombay High
oilfield. The report has been reviewed by the Bank's staff, which agreed with its
overall conclusions. These
conclusions suggest that the environmental impact of the proposed project will be
within acceptable
levels, if ONGC observes the suggested safeguards. The report points out that there
may be, in fact, a net
improvement in the quality of the environment as a result of the substantial
reduction of gas flaring. Key
environmental and safety concems are highlighted in the following paragraphs:
(a) UIQUID Ei'FLUiENTS. Discharges of liquids from production platforms consist of
produced water,
sewage and deck drainage. Produced water is treated prior to discharge overboard.
The
treatment ensures; that the oil content falls within a range of 25 to 50 parts per
million.
Treatrment is monitored by the Central Pollution Control Board at a sufficient
number of
sampiing points. After treatment, the effluent is discharged at a depth of 40 to 50
meters,
wihich ensures dilution to about 20 parts per billion within one kilometer of the
platform.
Treatment plants are provided to handle sanitary water and sewage. These plants
ensure
that the treated sewage meets the standards stipulated by the US Coast Guard.
Again, these
discharges are monitored by the Central Pollution Control Board. Deck drainings are
routed
to the nroduced water treatment facilities.
(b) SOIID WASTES. The only significant source of solid wastes on a production
platform are
kitchen wastes. These should be either ground and disposed of in the sea, or
transported to
the shore for disposal.
(c) NOISE AND VIBRAIION. Protection against the noise and vibration caused by
equipment on the
platforms will be addressed in the Bank's review of the design of the platforms, in
particular
the living quarters. The other major source of noise on an offshore platforn is the
flare. By
reducing the flaring of gas, the project will also eliminate a major source of
noise on offshore
platforms in the Bombay High oilfield.
(d) DiSRUv0ON OF MARIINE LIFE.. Construction of the platforms will initially
disrupt the seabed
conditions in their vicinity. The same is true for the laying of the high pressure
gas
trunklines. However, these disruptions will be neither severe nor permanent. Marine
growth
on offshore structures is likely to result in a localized increase in the range and
quantity of
miarine life.
(e) DISAS`TER ENVIRONME.N`AL PRO.CrTION. The potential sources of major oil
spills on a production
platform are limited to large failures of the process equipnent or the oil/well
fluid risers. In
the event of a substantial process leak, the platform would be quickly shut down
and the
source of the leak isolated. In the event of a riser failure, the leak may continue
for some
time. ONGC is equipped to deal with oil spills of up to 400 tons of spilled oil per
day. To this
end, ONGC has deployed five multi-purpose support vessels in the Arabian Sea. Two
of
these vessels carry containment booms and oil skimmers. Additional equipment for
contain-
ing oil spills is stored ashore. The Indian Coast Guard has the capacity to deal
with oil spills
of up to 300 tons per day. However, ONGC and the Coast Guard would not be able to
cope
with a major oil spill. Following the recommendations of the appraisal mission,
ONGC
agreed to prepare contingency plans for such an incident, wliich would involve
support
from international oil spill control centers. The necessary investments would be
financed
under the proposed project.
(f) LEAKAGE FROM GAS PUIELINES. Since the gas transported in the pipelines to be
constructed under
the project consists mainly of methane and does not have a significant
concentration of
hydrogen sulfide, even a large release of gas into the atmosphere will not have a
significant
-35 -
Table 4.1 Project Cost Estimate
Foreign Lxal TotJ Foreign L1al Total Foreign
Cost components
Exdwnge
-----Rs million-- --USS milion--- Percent
Process platform, NQP 4,516 1,084 5,600 209.0
50.2 259.2 81
Compressors, St C 2,612 627 3,239 125.0
30.0 155.0 81
Process platform, SHG 5,001 1,200 6,201 230.0
55.2 285.2 81
Unepipe, SlGC-BPB 1,195 359 1,554 58.0
17.4 75.4 77
Laying, coating and wrapping, SHC-BPB 229 1,544 1,872 15.7
6.1 21.8 72
Platform modifications 1,362 327 1,69 63.3
15.2 78.5 81
Linepipe, ICP-lleera 1,443 433 1,876 70.0
21.0 91.0 77
Laying, coating and wrapping ICP-Hieera 2,067 496 2,563 97.0
23.3 120.3 81
Lirepipe, BPB-iazira 4,941 1,4U; 6,424 220.0
66.0 286.0 77
Laying, coating and wrapping, BPB-Hlazlra 2,899 696 3,595 129.3
31.0 160.3 81
Expansion Hazira gas terminal 6,130 4,850 10,980 2753
217.8 493.1 56
Reservoir management, services and equipment 1,355 1,239 2,593 67.4
61.7 129.1 52
Engineering and project management 159 477 637 7.5
22.5 3Q0 25
Studies and training 43 13 55 2.0
0.6 2.6 77
Environmental component 304 139 444 14.7
9.8 24.5 60
Base cost (1991 prices) 34,357 14,966 49,323 1,54.2
627.7 2,211.9 72
Physical contingendes 3,436 1,497 4,932 158.4
62.8 221.2 72
Price contingencies 5,261 4,531 9,792 239.5
205.8 4453 54
Total project cost 43,054 20,993 64,047 1,982.1
8963 2,S78A. 69
Interest during construction 4,341 2,165 6,506 204.1
101.8 305.9
Total Financing Required 47,395 23,159 70,554 2,186.2
998.1 3,184.3
Note: Baseline cost include customs duties of USS 374.4 million equivalent
ONGC charges interest during constructixn to operatons
impact on the environment. (Annex 4.5 contains a more detailed description of the
environ-
mental aspects of the project).
Project Cost
4.22 The project is estimated to cost US$ 2878 million, including
physical and price contingencies
as well as taxes and customs duties on imported materials and equipment of US$
374.4 million (Table 4.1).
A breakdown of year-by-year project costs appears in Annex 4.6. The proposed Bank
loan of US$ 450
million represents 22.7% of the estimated foreig. exchange cost.
4.23 Estimated project costs are expressed in mid-1991 prices which have
been derived from
recent contracts and similar modification work. Physical contingencies of 10% of
base costs have been
includeJ. Local price contingencies have been estimated at 8.3% in 1991, 6.6% in
1992,6.5% in 1993 and
1994 and 6.2% in 1995 and 1996. Foreign price contingencies have been estimated at
3.4% of the respective
base costs pluS physical contingencies. Taxes and customs duties on imported goods
and services have
been estimated on the basis of average rates provided by ONGC.
- 36 -
Table 4.2 FinancOnt Plan
USS million
Source of Finance local Foreign Total Percent
World Bank 450.0 450.0 14.2
Asiain Development Bank 300.0 300.0 9.4
Export-Import Bank of Japan' 350.0 350.0 11.0
Export/supplier credits 745.6 745.6 23.4
ONGC 996.1 340.6 1388.7 42.0
Total 996.1 2,186.2 3,1843 100.0
'GO's request for finarndrg is currently under study by J-EXIM
Finars'ing Plan
4.24 The proposed project represents about 24% of ONGC's investment program
for 1991-95.
Unlike many of its other investmnents, 69% of the total cost of the proposed
project would be in foreign
exchange. ONGC will have no difficulty meeting the local cost component (31% ot .
al cost) from inter-
nally generated cash. Tre principal sources of foreign exchange for this project
would include the World
Bank, the Asian Development Bank, the Export-Import-Bank of Japan as well as export
credit agencies and
suppliers. However, since ONGC does not earn foreign exchange, it would have to
cover the remaining
foreign exchange costs through external borrowing or from the Government's free
foreign exchange
reserves. ONGC has requested the Bank's assistance in nobilizing the foreign
exchange required under
the proposed project.
4.25 The financing plan for the proposed project, which has been agreed with
the Government
and ONGC, is summarized in Table 4.2. A detailed financing plan for the proposed
project is contained in
Annex 4.7. This plan has been developed on the basis of an extei,sive analysis of
the financing alternatives
currently available to ONGC. Since the bulk of foreign exchange rquirements would
have to be met from
sources other than the Government or untied private loans, the procurement packages
were designed to
attract the maximum amount of cofinancing from suppliers and export c edit
agencies. Based on the
interest shown by the export credit agencies and suppliers, the Bank's staff
estimates that about US$ 746
million or 34% of the total foreign exchange requirements could be met in this
manner. To meet the
remaining foreign exchange requirements, the Govemrnent decided to seek cofinancing
from the Asian
Development Bank (ADB) and the Export-Import Bank of Japan (J-EXIM). The ADB has
included financial
support for this project in its program for FY92. GOI's request for untied
cofinancing is currently under
study by J-EXIM.
4.26 The Bank plays a crucial catalytic role in arranging the financing for
this project, at a time
when India's credit rating has come under pressure. Taking into account the
importance of this role and
the amount of cofinancing the pr lject is likely to attract, a Bank loan of US$ 450
million equivalent is
proposed. The loan, which will b madedirectly to ONGC on the Bank's standard
termsfor India, will be
guaranteed by the Government. The Government will charge a guarantee fee of 1% p.a.
on the outstanding
amount of the Bank loan. The foreign exchange and variable interest rate risks will
be borne by ONGC.
4.27 Based on an assessment of the likely interest of cofinanciers in the
various procurement
packages and the Bank's interest in providing technical assistance, the following
project components were
selected for Bank financing:
- 37-
(a) construction of the process platfornm, NQP;
(b) installation, coating and wrapping of the of the pipeline from SHG to BPB;
(c) installation of platforn modifications;
(d) procurement of equipment and services for the proper management of the Bombay
High
oilfield;
(e) the financing of the cost for engineering and project management; and
(f) studies and training.
Table 4.3 Summary of Procurement Arrangements
USS million
Procuemet Method
Project Components ICB Other N.A. "
Total
Process platform, NQP 282.1 50.2
332.3
(261.0) (261.0)
Compressors, SHG 163.4 b/ 30.0
193.4
Process platform, SHG 312.0 b/ 552 367.2
Linepipe, SHG-BPB 76.1 b/ 17.4
93.5
Laying, coating and wrapping, SIIG-BPB 23.7 3.8
27.5
(19.2) (19.2)
Platform modifications 85.1 15.2
100.3
(78.8) (78.8)
Linepipe, ICP-K-eera 91.8 b' 21.0
112.8
Laying, coating and wrapping, ICP-Heera 1292" 23.3
152.5
Linepipe, BPB-Hfazira 313.8 b/ 66.0
379.8
Laying, coating and wrapping, BPB-Hazira 180.5 ' 31.0
211.5
Expansion Hazira gas terminal 613.4 57.8
671.2
Reservoir management, services and equipment 161.3
161.3
(79.3) (79.3)
Engineering and project management 40.6
40.6
(9.2) (9.2)
Studies and training 33
33
(2.5) (2.5)
Environmental component 27.7 "/ 3.5 31
2
Total 1,169.5 1,344.5 374.4 2,878
4
Bank loan (4383) (11.7)
(450.0)
Note: Rgures in partheses are the respective amounts financed by the Bank
' Taxes and duties
' Export ad suppliers credits
ADB procuremnent procedures
-38-
Procurement and Disbursements
4.28 Table 43, which sumnmarizes the procurement arrangements, shows that
about US$ 1.2
billion worth of goods and services will be procured in accordance with the Bank's
guidelines for interna-
tional competitive bidding. This is equivalent to about 41% of total project cost.
The Bank's loan of USS
450 million will finance about 38% of the cost of items procured under ICB.
Procuremnent under limited
Intemational Competitive Bidding (LICB), financed by supplers' or export credits,
is expected to amount
to about US$957 million (for a description of LICB, see Annex 4.4). Consulting
services will be obtained by
ONOC in line with the Bank's guidelines for the use of consultants. It is expected
that the components
financed under an untied cofinancing facility currently under study by the Export-
Import Bank of Japan
would be procured through ICB in line with World Bank procurement guidelines. The
procurement under
the proposed Asian Development Bank loan v Id be carried out under its guidelines.
4.29 The Bank's loan will provide financing for three major packages.
Considering the small
number of packages and their large amounts, prior Bank review of all essential
procurement documenta-
tion will be required. In view of the fact that timely implementation is critical
for the viability of the
project, ONGC has submitted the documentation for all packages to the Bank for
review. For items to be
financed by the Bank, the Bank's standard domestic preference provisions will, at
ONGC's option, apply
for the evaluation and comparison of bids.
4.30 Given the urgency to complete the proposed project as scheduled, ONGC
has started the
procurement process for the process platform SHG, the compressors and the linepipe
for the pipeline
connecting platforn SHG with platform BPB. In addition, ONGC has incurred
substantial expenditures in
the context of implementing measures to improve the reservoir management of the
Bombay High oilfield.
Depending on the pace with which these measures are implemented and contracts can
be finalized, up to
US$45 million of retroactive financing by the Bank may be required. ONGC has
requested the Bank to
review all packages for which advance contracting might apply. The appraisal
mission has made specific
recommendations to ONGC in order to bring the packages in line with the Bank's
guidelines. ONGC nas
revised the packages accordingly.
4.31 The phasing of the projected disbursements of the Bank loan is shown in
detail in Annex 4.8
and summarized in Table 4.4:
Table 4.4 Phasing of Disbursements
US$ million
Yelr I Yar 2 Year 3 Yar 4 Yegr 5
FY92 FY93 FY94 FY95 FY96
Annual 111.1 139.4 135.0 61.0 3.5
Cumulative 111.1 250.5 385.5 446.5 450.0
Source: Buik stff projectons
432 Disbursement of the proposed Bank loan is based on the assumption that
the loan will
become effective by the end of the first quarter of FY92. It is expected that the
loan will be completely
disbursed by December 31, 1995. While the disbursement period of five years is
substantially shorter than
would be indicated by the Bank's experience with similar oil and gas projects, the
advanced state of
project preparation and procurement makes this a realistic assessment. ONGC and the
Govemment are
fully aware that slippages in the implementation of the project would jeopardize
the viability of the
project. ONGC has worked closely with the Bank to minimize the risk of
implementation delays and thus
delays in the disbursement of the Bank's loan. Based on the projected schedule of
expenditures a closing
datefer the Bank's loan of December 31, 1995 has been established.
- 39-
Table 4.5 Allocation of the Proposed Bank Loan
Category USS million Percentnge of Fxpnditures Financed
Process ' ilities and pipeline systems
(a) equipment and materials 325.0 100% of foreign expenditures and IOOY of
local
expenditures (ex-factory cost)
(b) erection/installation and rig hire 90.0 100% of foreign expenditures and
90% of local
expenditures
(c) supervision and specialized services 10.0 100% of expenditures
Consultant serviees 5.0 100% of expenditures
Unallocated 20.0
Total 450.0
4.33 To facilitate disbursements a Special Account would be established
with an authorized
allocation of US$25 million, which is equivalent to about four months of average
disbursemrents. Disburse-
ments for consultant services and training under contracts valued at less than US$
100,000 would be made
on the basis of Statements of Expenditure (SOE). Documentation of SOEs would be
retained by ONGC
and made available for review by Bank supervision missions. All other
disbursemrents would be made
against full documentation. The Bank's loan will be disbursed against the
categories outlined in Table 4.5.
V. FINANCIAL AND ECONOMIC ANALYSIS
Project Benefits
5.01 The proposed project consists of a slice of ONGC's investment program
which aims at
increasing oil output from the Bombay High oilfield. As an integral part of this
project, the Gas Flaring
Reduction project will finance investments that will allow ONGC to recover,
compress, transport, and
process gas onshore. The gas recovery and compression facilities serve two
purposes, to increase oil
output through 'gas lift' and to provide the necessary pressure for transporting
gas to users onshore.
Furthermore, the pipeline and onshore gas processing facilities that will be
constructed under the project
will make it possible to take gas from other offshore oil and gas fields, - South
Bassein, Heera and
Neelam, and Panna and Mukta - to onshore markets.
5.02 The investments under the proposed project will eliminate the flaring
of about 12 MMCMD
of associated gas and contribute to an increase of oil production by about 3 - 4
million tons a year in the
Bombay High oilfield. It is estimated that over the life of the project (1991 -
2010) an additional volume of
about 64 billion cubic meters of gas will be produced which. at current gas prices
of Rs 1,500 per 1000m3
and exchange rates, represents a financial value of US$ 5 billion. This additional
gas will replace liquid
petroleum products (mainly naphtha) in petrochemical and fertilizer industries,
middle-distillates in
peak-load power generation, and coal and fuel oil in industrial uses and base-load
power generation. As
such, the project will reduce India's petroleum import requirements and the
consequent drain on foreign
exchange; it will also reduce the demand for coal in the western region, the need
of additional rail trans-
port capacity for coal and the environmental pollution associated with the use of
coal. The project will also
make it possible for ONGC to increase oil production in the Bombay High oilfield.
Over the life of the
project these investments will add about 60 million tons of oil. Valued at US$20
per barrel, this would
represent a financial value of about US$8.2 billion.
-40 -
Project Financial Analysis
5.03 Annex 5.1 contains the detailed assumptions and Annex 5.2 the
calculations of the financial
rate of return of the project. This calculation is based on the capital and
operating cost estimates contained
in the project cost tabic, including physical contingencies and local taxes and
duties. The revenues from
sales of incremental gas are valued at Rs 1,500 per 1000 ml for the base case. All
inputs have been valued
in constant 1991 terms.
5.04 Table 5.1 summarizes the financial internal rates of return for the
base case and the results
of the :nsitivity analyses.
Table 5.1 Financial Rate of Return: Sensitivity Analyses
Assumption InternaJ Rate of Return
Percent
Base Case (Gas pnce Rs 1,500/100(0Xm) 17.5
Gas price 10% lower 14.6
Gas price 25% lower 9.8
Rcvenuei delayed by one year 14.0
Reveenues delayed by two years 11.7
Revenues delayed by three years 9.9
Capital costs 10%. higher 14.9
Capital costs 25% higher 11.5
(Capital cost including. I IBJ upgrade and
pi ice Rs 2,250 per I (CU ml 22.9
.)x)urce Bank staff estcmates
5.05 The sensitivity analyses show that the financial rate of return is
quite sensitive to implernen-
tation delavs suggesting the need for efficient project implementation (para.4.13).
Project Economiic Analysis
5.06 For the economic analysis, natural gas has been valued on the basis of
the fuel which it
replaces. For the purposes of project evaluation, it has been conservatively
assumed that all gas replaces
fuel oil, the lowest valued replacement. Even where gas replaces coal in power
generation or industrial
uses, the economic cost of coal, either imported or supplied by indigenous coal
iields is roughly at par
with the cost of imported fuel oil.
5.07 Annexes 5.3 and 5.4 show the detailod assumptions and calculations of
the economic rate of
return of the project. The project cost estimates are in constant 1991 dollars, net
of taxes and duties. The
standard conversion factor of 0.8 has been applied to the cost of the local
component of the project to br. ng
it to the level of border prices in India. Physical contingencies of 10% of the
base cost estimate have also
been included. CIF costs have been used in calculating the cost of the foreign
exchange component.
5.08 The operating costs are based on ONGC's experience with similar
installations and repre-
sent overall about 2% of the estimated capital cost. This appears low for estimates
in the offshore oil
industry but can be explained by the comparatively high proportion of pipeline
investments for which
repair and maintenance costs are not as high as for platform and other investments.
ONGC estimates that
1% of the capital cost is appropriate for pipeline repair and maintenance. For all
other Investments the
corresponding percentage is 3% Annex 5.1 shows the detailcd calculation of the
operating cost of the
project.
-41 -
5.09 The project benefits (natural gas) have been valued at equivalent fuel
oil prices expressed in
constant 1991 terms. Fuel oil prices were projected on the basis of crude oil price
projections issued by the
Bank's International Commodity Markets division. The detailed calculations of the
prices for the fuel oil
equivalent for gas in India are shown in Annex 5.2.
5.10 The output created by the project consists of about 64 billion cubic
meters of natural gas of
which 29 billion would have to be flared without the project. Marketia. .of this
incremental gas will be
carried out through the terminials in Hazira (in the State of Gujarat) and LJran
(in the Bombay area). The
flow of incremental gas through Hazira requires strengthening of the HBJ gas pipe
line. The cost of these
additional investments are included in the cost/benefit stream of the economic rate
of return calculation.
The annual incremental production of gas will start in 1994 with a mnodest 3.6
MMCMD of gas due to the
capacity limitations of the Uran terminal. In 1996 additional gas supplies are
expected to increase to 24.6
MMCMD. From then on, supplies will decline due to the gradual exhaustion of the
Bombay High
oilfields. Additional finds are expected to make up for the decline in gas supplies
from this major oilfield
shortfall.
5.11 When converting to natural gas there are further economic benefits in
the formn of reduced
storage and handling costs, reduced maintenance costs as well as lower pollution.
Additional benefits
result from the increased thermal efficiency of natural gas relative to liquid
fuels. Although the mnagnitude
of these savings varies from industry to industry, their total impact can be
substantial. These benefits were
not included in the benefit-cost analysis.
5.12 As menrionrt.d above, the project contributes also to an increase of
oil output from the
Bonibay Hiigh oilfield, which amounts to about 60 million tons of oil over the 19
year 'life-time' of the
project. Again, the value of this contribution of the project was not taken into
account in the evaluation of
the economic rate of retL rn.
5.13 Without these additional benefits, the proposed project would yield an
economic rate of
return of 30%, As mentioned in paragraph 5.05 with respect to the financial rate of
return, the econonmic
return is equally sensiti e to slipoages in project implementation. A delay in
project implementation by
one year would reduce the rate of return to about 24%, by two years to about 20%.
Any further delay
would be likely to render the project nonviable.
5.14 The sensitivity analysis made resulted in the following rates of
return:
Table 5.2 Economic Rate of Return: Sensitivity Analyses
Assumptions Internal Rate of Return
Percent
Base Case 30.3
Gas orice 10% lower 26.7
Gas price 25% lower 21.0
Revenues delayed by one year 24.3
Revenues delayed by two years 20.5
Revenues delayed4 by three years 17.7
Capital costs 10% higher 27.1
Capital costs 25% higher 23.0
Volume 6% higher (365 instead of 345 days) 32.3
Source Bank staff estimates
-42 -
Project Risks
5.15 The project faces three najor risks:
(i) delays in the implementation of the project which would quickly reduce its
viability;
(ii) delays in the offtake of the additional gas that will be made available
through the project;
and
(iii) the possibility that ONGC will not be able to raise the foreign exchange
required for the
project. This risk is aggravated by the fact that India's credit worthiness has
suffered re-
cently.
5.16 To minimize the risk of implementation delays, ONGC has agreed to award
the construc-
tion of najor items, such as platforms and submarine pipelines, on the basis of a
series of contracts under
single responsibility. In addition, ONGC has worked dosely with the Bank to
streamline its organization
and management for the implementation of projects. The bidding documents for all
major components of
the project have been reviewed by the Bank. (para 4.14).
5.17 The risk of delays in the offtake of the gas will be significantly
reduced through the
Government's decision to set up a special monitoring committee in the Department of
Petroleum and
Natural Gas that will review quarterly the progress in implementing the proposed
project as well as the
projects that will utilize the additional gas supplies. The quarterly reports of
the monitoring committee
will be submitted to the Bank for review together with recommendations in case of
any slippage in project
implementation. The Bank will have an opportunity to review the implementation of
these recommenda-
tions.
5.18 To minimize the risk that difficulties in the financing of the foreign
exchange components
delay the project, the Bank has engaged in extensive consultations with ADB and J-
EXIM and has worked
closely with ONGC and the Government to ascertain the availability of finance from
export credit agen-
cies and suppliers. The Government's request for untied co-financing from J-EXIM is
currently under
study by J-EXIM. In the unlikely event that J-EXIM is unable to participate in the
financing of the project,
the Bank will assist ONGC in mobilizing credit from other export credit agencies.
5.19 While technical risks are higher for offshore than for onshore
projects, ONGC has accumu-
lated considerable expertise in carrying out projects of this kind. In addition,
all major project components
will be carried out by experienced contractors on a turnkey basis. Thus, the
proposed project poses no
significant technical risks.
VI. AGREEMENTS AND RECOMMENDATION
6.01 AGREEMENS. The following agreements have been reached:
(a) With the Government that it will:
(i) implement a gas pricing policy which links domestic gas prices to intemational
prices
of fuel oil and discuss, with the Bank, any revisions of this pricing policy (para.
2.31-
2.32);
(ii) set up a body in the Department of Petroleum and Natural Gas to monitor, on a
quarterly basis, the implementation of oil and gas field developments and revise
gas
production plans accordingly; this body would monitor, also on a quarterly basis,
the
-43 -
progress in construction of plants and other facilities (pipelines, gas processng
facilities. etc.) required for the projected offtake of gas. The body will issue a
quarterly
report, listing any deviation from the plans of gas producers and potential
consumers
and containing recommendations for steps to be taken to ensure the efficient use of
projected gas supplies. Copies of these reports would be submitted to the Bank for
review (para. 2.15);
(iii) submit annual reports to the Bank indicating changes in gas allocations and
their
imputed or net-back values (para. 2.19).
(b) With the Oil and Natural Gas Commission that it will:
(i) review annually with the Bank its investment program and the implications of
this
program on its financial position (para. 3.22);
(ii) naintain its current ratio at 1.2 tines or higher, its debt-service coverage
ratio at 1.5
times or higher, and its debt-to-equity ratio at no more than 1: 5 (para. 3.23);
(iii) have its annual accounts audited by an independent auditor acceptable to the
Bank
within nine months of the end of the fiscal year and provide the Bank with
unaudited
financial statements (incomne statements, funds flow statement and balance sheet)
within six months of the end of the fiscal year (para. 3.11);
(iv) retain the services of a financial advisor for mobilizing foreign exchange
resources
(para. 3.26);
(v) establish Project Implementation Units for each of the four sub-projects, and
appoint
an overall coordinator (OSD) for the purposes of the Bank project (para. 4.10);
(vi) carry out a review of its procurenent and project implementation
organization,
discuss the results of this review with the Bank and implement its recommendations
(para. 4.13).
(vii) carry out a safety audit for its entire offshore operations, discuss the
results with the
Bank and implement the recommendations of the audit (para. 4.20);
(viii) carry out a safety engineering study of existing platforms linked to
facilities that will
be constructed under the project, discuss the results with the Bank and implement
the
recommendations of the study (para. 4.20);
6.02 The following are conditions of effectiveness of the proposed loan:
(i) announcement inviting domestic and foreign oil companies to participate in a
fourth
round of bidding for offshore and onshore parcels selected by GOI for exploration
(para. 3.08);
(ii) obtaining of the environmental clearance for all components of the proposed
project
(para. 4.13); and
(iii) establishing of a body in the Department of Petroleum and Natural Gas which
would
monitor the implementation of gas supply and utilization plans (para. 2.15).
6.03 RECOMMEW4DATION. On the basis of the project justification and the
agreements reached during
negotiations, the proposed project would be suitable for a loan of US$450 million
equivalent to the Oil and
Natural Gas Commission for a period of 20 years, including five years of grace, at
the Bank's standard
variable interest rate. The loan would be guaranteed by the Govemment of India.
-45 -
INDIA Annex 1.1
GAS FLARING REDUCTION PROJECT Page-T6m
Energy Balances, 1980-81 to 1988-89
Trends in availability and consumption of commercial energy, 1980-81 to 1988-89
Milijo ton es of oil equiwtnt
Fiscal Gross Conmrion Net
Othrr No"-
Years eavilabzity tlosses awilability Agriculture Industry Trensport
RtsidentiW ene"usew energy uJs
1980-81 92.623 23.859 68.764 1.625 36.861 17.443
5.637 1.901 5.297
1981-82 101.411 26.567 74.844 1.624 40.607 17.787
6.258 2.042 8.526
1982-83 109.023 28.552 80.471 1.861 44.607 18.758
6.820 2.127 6.680
1983-84 114.944 31.261 83.68. 1.687 46.265 19.655
7.250 2.214 6.412
1984-85 121.510 34.997 86.513 2.131 46.595 20.309
8.038 2.341 7.099
1985-86 131.425 38.028 93.397 2.309 50.059 21.719
8.773 2.488 7.969
1986-87 141.187 40.927 100.260 2,807 53.423 22.789
9.532 2.677 9.032
1987-88 149.241 47.654 101.587 3.630 51.261 24.476
10.375 2.953 8.892
1988-89 163.606 52.621 110.985 3.861 56.214 26.055
11.532 3,684 9.639
Source: Compled from energy baldnce
-46 -
INDIA Annex 2.1
GAS FLARING REDUCTION PROJECT Page 1 ofT2
Gas Production Projections
1. GAS PRODUCrION. While associated gas production is controlle by the
rate of oil production,
frec gas can be used as required up to the capacity limit of the wells, pipeline
system and processing
plants. The gas caps overlying the oil cannot be drawn on until the oil has been
exhausted, otherwise the
amount of oil recovered will be diminished. In order to project India's gas
production, it is necessary to
make certain assumptions regarding construction and implementation of development
programs to be
carried out by ONGC and GAIL. Since there are no facilities for storage of natural
gas in India, apart from
the limited amount which can be accommodated by building up pressure in the
pipelines (line-pack-
ing"), and given that India is a net importer of oil, it must be assumed that all
oil fields will be produced at
their maximurn efficient rate and that any associated gas produced in excess of
local gas demand in the
producing regions will continue to be flared. A further corollary to the lack of
gas storage is that produc-
tion and consumption will be equal. The follo..ing specific assumptions were made:-
Bombay Offshore - The gas flaring reduction program will proceed
as planned.
- The gas oil ratio (GOR) of the Bombay High oilfield will be
reduced to 400 cubic meters of gas for eacti cubic meter of oil
produced (v /v), that is a GOR of 400:1 v/v will be maintained at
all wells.
- Other oil fields in the area will have a GOR maintained at or
below 400:1 v/v.
- Discovered fields in the area will sustain gas production of 52
MMCMD through year 2010.
Westem Region - Oil field GOR will be maintained below 500:1
v/v.
- Free gas (which can be connected to the HBJ pipeline) will not be
put on production until 1997.
- Discovered fields will sustain gas production of 16 MMCMD.
- Rajasthan gas production begins in 1995 fcr local market.
Assam - Discovered fields will sustain gas production of
11 MMCMD.
Tripura - Gas production begins in 1993 for supply to
local markets.
2. Potential gas sales that can be sustained from existing known reserves
are of the order of 93
MMCMD, even though actual producing capacity may initially exceed this level.
Future discoveries of
gas are probable but, being unquantifiable, have not been taken into account.
Future large discoveries
may cause substantial changes in transport and marketing requirements, depending on
their physical
location. Table I summarizes the projected gas out put from oil and gas fields in
the Western region and
t;-e Bombay High oilficid. These projections are conservative and only production
from known fields was
taken into consideration.
-47-
INDIA Annex 2.1
GAS FLARING REDUCTION PROJECT Page 2 of 2
Gas Production Projections
Table 1 Gas Production in India's Western Region and Bombay High, 1991 to 2010
Million cubic meters per day
---- Aswciated Cas ----- Free as
Yeaa Bombay Ileera Neelam Patina & Total South South Bombay Panna
Mid Other Total Tota
High Mukta Associated assein 2Bassein' High SI South
knobm Fra Gas
Gas Tapti structures Gas Pr'd'n
1991 16.0 1.1 17.1 7.5
7.5 24.6
1992 16.0 1.5 17.5 9.7
9.7 27.2
1993 14.8 1.0 15.8 13.8
13.8 29.6
1994 19.3 0.7 0.7 20.7 15.3
15.3 36.0
1995 19.3 0.5 1.2 2.3 23.3 12.7
12.7 360
1996 26.8 0.4 1.2 3.8 32.2 2S.0 3.8
28.8 61.0
1997 24.2 0.3 1.6 4.2 30.3 25.0 4.2 1.5
30.7 61.0
1998 21.2 0.3 1.9 3.9 27.3 25.0 2.4 3.0
3.3 33.7 61.0
1999 19.9 0.6 2.0 3.5 26.0 25.0 3.7 3.0
33 35.0 61.0
2(00 18.3 0.5 2.0 3.0 23.8 25.0 5.3 3.0 0.6
3.3 37.2 61.0
2001 16.9 0.5 1.7 2.4 21.5 25.0 7.3 3.0 0.9
3.3 39.5 61.0
2002 15.3 0.4 1.6 1.6 18.9 25.0 9.2 2.5 2.1
3.3 42.1 61.0
2003 13.9 0.3 1.2 1.2 16.6 25.0 11.5 22 2.4
3.3 44.4 61.0
2004 12.6 0.3 1.0 1.1 15.0 25.0 14.1 1.2 2.4
3.3 46.0 61.0
2005 11.3 0.3 0.9 1.1 13.6 25.0 16.7 2.4
3.3 47.4 61.0
2006 9.5 0.3 0.9 0.9 11.6 25.0 16.7 2.4
3.3 2.0 49.4 61.0
2007 8.7 0.3 0.7 0.8 10.5 25.0 15.8 2.4
33 4.0 50.5 61.0
2008 7.9 0.2 0.7 0.7 9.5 25.0 15.8 2.4
33 5.0 51.5 61.0
2009 7.6 0.2 0.5 0.7 9.0 25.0 16.5 2.2
3.3 5.0 52.0 61.0
2010 7.0 0.1 0.4 0 9 8.4 25.0 17.3 2.0
3.3 5.0 52.6 61.0
Notes: ' Net gas availabilty after int-mal use of gas and taking into account
compressor and pipeline constraints.
2 South Bassein production based on maximum production capacity of 25 MMCMD
I Additional production capaaty from South Bassein requir&e to meet delivery
commitments to gas consumers
Source: ONGC and Y ssion estimates
-48 -
INDIA Annex 2.2
GAS FLARING REDUCTION PROJECT Pag 1 o(f 1
Gas Flaring in Major Gas Producing Regions
Million cubic merTs per day
1 .0 (F) 4.5~~~~~~~~~~~~~~~Rrd a (U-)
2.5UU a (_
28~~ 0 El j omba
| r _ ~~~~~~~~.1 _ U)1
Guj~~~~~~ad ra s Z ssm
si~~~~~~~~~~~~~~~~~~~Uiie gast _ -
| _00 Calutt 00 00_00
-49 -
INDIA Annex 2.3
GAS FLARING REDUCTION PROJECT riageT-F4
Projected Gas Utilization
Table 1 Utilization (Commitments) of Gas in t'ie Bomnbay Market, 1991 to 1995
Million cubic meters per day
Sector Consu4mer 1991 1992 2993 1994
1995
Fertilizer: Rashtriya Chem. & Fert., Trombay 1.80 1.80 1.80 1.80
i0
Rashtriya Chem. & Fert., Thal 3.00 3.00 3.00 3.00 3.00
Deepak Fert. & Petro-chem. Ltd. 0.30 0.30 030 0.60 0.60
Subtotal fertibzer 5.10 5.10 5.10 5.40 5.40
Power: Tata Fiectric Company 1.50 1.50 1.50 1.50
1.50
Maharashtra SEB Uran 3.00 3.00 3.00 3.00 3.00
Maharashtra SEB Uran extension 1.50 1.50 1.50 1.50
Subtotal pow.er 4.50 6.00 6.00 6.00 6.00
Industry: Maharashtra Gas Cracker 0.60 0.60 0.60 0.60
0.60
Bharat Petr./llindustan Pctr. Ltd. 0.05 0.05 0.05 0.05 0.05
Bharat Electronic Ltd. 0.03 0.03 0 03 0.03 0.03
ONGC: C2/C3 1.15 1.15 1.15 1.15 1.15
ONGC: LPG 1.00 1.00 1.00 1.00 1.00
Heavy Water Project 0.15 0.15 0.15 0.15 0.15
Grasim 0.75 0.75 0.75 0.75
lindustan Copper Ltd. 0.01 0.01 0.01
Kalyanm Steel 0.75 0.75
Nippon Denro 1.00 1.00
GAIL: LPC 0.45 0.45
Hindustan Organic Co. 0.15
Medtist 0.01
Subtotal 2.98 3.73 3.74 5.94 6.10
Other Bombay city dcstributon G.;0 0.50 0.80
1.50
Total commitments 12.58 14.93 15.34 18.14 19.00
Uran terminal capacitv 12.50 12.50 12.50 16.00 16.00
Expected offtake 12.50 12.50 12.50 1600 16.00
Source: GAIT. and mission estimates
- 50 -
INDIA Annex 23
GAS FLARING REDUCTION PROJECT Pa2gei2 of4
Projected Gas Utilization
Table 2 Bombay Area Gas market: Status of Projects to Utilize Gas, 1990
Million cubic meers per day
Existing New Cas Govt. Gas Financing
Consumer Alloc- Approved Contract Arranged
Sector Consumer Commitments 'ations Proects Signed
Remrks
Fertilizer: Rashtriya Chem. & Fert., Trombay 1.80 Yes
Rashtriya Chem, & Fort., Thai 3.00 Yes
Deepak Fort. & Petro-chem. Ltd. 0.60 Yes
Power: Tata Electric Company 1.50 Yes
Maharashtra SEB Uran 3.00 Yes
Maharashtra SEB Uran extension 1.50 Yes No Yes Planned
conumnissioning 1992
Industry: Maharashtra Gas Cracker 0.60 Yes
Bharat Petr./Hindustan Petr. Ltd. 0.05 Yes
Bharat Electronic Ltd. 0.03 Yes
ONGC: C2/C3 1.15 No
ONGC: LPG 1.00 No
I leavy Water Project 0.15 Yes
(rasim 0.75 Yes No Yes
I lindustan Copper Ltd. 0.01 No No No
Kalvani Steel 0.75 Yes No Yes
Private. Land acquired.
Nippon Denro 1.00 Yes No Yes
Private. Land acquired.
GAIL: LPG 0.45 No No No
I lindustan Organic Co 0.15 No No No
Modtist 0.01 No No No
Other: Bombav City I)istribution 1.50 No No
No
lotal 12.88 6.12
Notes " otai off take is generalIy i rmtne with total conmnitments, because of
fall back demand
Source- GAIL.
- 51 -
INDIA Annex 23
GAS FLARING REDUCTION PROJECT Pag 3 o
Projected Gas Utilization
Table 3 Utilization (Commitments) of Gas in the Gujarat Market and along the HBJ
pipeline,
1991 to 1995
Million cubic metm pr7 day
Sector Consumer 1991 1992 1993 1994 1995
Fetilizer Krishak Bharati Coop. 3.30 3.30 3.30 3.30
3.30
National Fert. Ltd., Bijaipur, MP 1.80 1.80 1.80 1.80 180
Indian Farmers and Fert., Aonla,UP 1.80 1.80 1.80 1.J0 1.80
Indo Gulf, Jagdishpur, UP 1,80 1.80 1.80 1.0 1.80
Chambal Fert. Gadepan-Rajasthan 1.80 1.80
Tata, Barbala, Ul 1.80 1.80
Bindal Agro, Shajahanpur, UP 1.80 1.80
Indian Farmers and Fert., Aonla,UP 1.80 1.80
National Fert. Ltd., Bijaipur, MP 1.80
Subtotal 8.70 8.70 8.70 15.90 17.70
Power: NTPC, Auraiya, UP 2.25 225 225 2.25
2.25
NTPC, Anta, Rajasthan 1.75 1.75 1.75 1.75 1.75
NTPC, Dadri, UP 0.50 3.00 3.00 3.00 3.00
DESU, Indrapasta St. 0.60 0.60 0.60 0.60 0.60
NTPC, Kawas 2.25 225
NTPC, Anta, Rajasthan 0.25 0.25
NTPC, Faridabad, Ilaryana 2.00
DESU, Bawana 2.00
Subtotal 5.10 7.60 7.60 10.10 14.10
Industry: Essar, Gujarat 0.50 0.50 0.50 0.50
0.50
LPG, ONGC Hazira 0.30 0.30 0.30 0.30 0.30
LPG, Bijaipur, MP, GAIL 0.50 1.00 1.00 1.00 1.00
Reliance Ltd., Petrochemicals 0.50 0.50 0.50
Heavy Water Project 0.10 0.10 0.10
C2/C3 (GAIL, Auraiya) 0.20 2.40 2.40
C2/0, (GAIL, Hlazira ) 1.40 1.40 2.10
Indian Oil Corp., Koyal, Gujarat 1.10 1.10 1.10
Essar Export 0.90 0.90
Liquid Fuel Replacement 0.90 0.90
LPG GAIL, Hazira extension 0.30
LPG (location to be decded) 1.00
Usha Rectifier, Jagdishpur, UP 0.80
Subtotal 1.30 1.80 5.10 9.10 11.90
Other: GAIL (smaU business customers) 1.00 1.00 1.00 1.00
1.00
Corr.pressor fuel 0.50 0.50 0.80 1.00 1.00
Surat dty distribution 0.30 0.30 030
Subtotal 1.50 1.50 2.10 2.30 2.30
Total commitments 16.60 19.60 23.50 37.40 4600
Hazira terminal capacity 20.00 20.00 20.00 20.00 2.00
Expected offtake 12.50 14.70 17.60 28.00 34.50
Source, GAIL and mission estizmates
- 52 -
INDIA Annex 2.3
GAS FL1 ING REDUCTION PROJECT 15go
Projected Gas Utilization
Table 4 Gujarat and HBJ Market: Status of Projects Utilizing Gas, 1990
Million cubic meters per day
Exist Gas New Govt Gas
Con nts Oiftake Gas Appr. Contract Fm.
Sector Cnusumer 1990/91 Alloc's PrFj.
Signed Arr'd Remarks
Fertilizer: Krishak Bharati Coop. 3.30 3.30
National Fort Ltd., Bijaipur, MP 1.80 1.55
Indian Farmers and Fert., Aonla,UP 1.80 1.55
Indo Gulf, Jagdishpur, UP 1.80 1.55
Chambal Fert, Gadepan-Rajasthan 1.80 Yes Yes Yes
Constr. started
Tata, Barbala, UP 1.80 Yes Yes Yes
Constr. started
Bindal Agro, Shajahanpur, UP 1.80 Yes Yes Yes
Constr. started
Indian Farmers and Fert., Aonla,UP 1.80 No No No
Appr. pend. 8th Plan
National Fort. Ltd., Bijaipur, MP 1.80 No No No
Appr. pend. 8th Plan
Power NTPC, Auraiva, UP 2.25 2.30(combined NTPC offtake)
Price dispute.
NTPC, Anta, Rajasthan 1.75 No
Price dispute.
NTI'C, Dadri, UP' 3.00 No KfW
Price dispute.
DESU, Indrapasta St. 0.60 Yes No
NTPC, Kawas 2.25 Yes No WB
Sched. comm. 92 to 94
NTI'C, Anta, Rajasthan 0.25 Yes No No
Sched. comm. 94 to 95
NTP'C, Faridabad, liarvana 2.00 Yes No No
Sched. comm. 94 to95
DESU, Bawana 2.00 No No No
Industry F:ssar, Cujarat 0 50 0 50
L1PG, C)NIC I iazira 0.30 0.30
L.1'(, Bijaipur, MP. GAIL 1.0(
RclKance Ltd, P'etrochemicals 0.50 Yes No No
I lca, N Water Project 0.10 Yes Yac No
(2/C3 (GAIL, Auraiya) 2.40 No No No
C2/C3, GAIL, I lazira) 2.10 No No No
Indiani (.Il Corp, Koyali. Gularat 110 Yes No Yes Under
implementation
E Nsar EXport 0.90 No No No
lIquLid Fuel Replacemen: 0.90 No No No
LP(; GAIL I iazira extension 0.30 No No No
L PG (location to be decded) 1.00 No No No
U sha Rectifier, Jagdishpur, UP 080 Yes No No
Other (AIL. (small business customers) 1.00 1.00
na.
Compressor fuel 1.00 n.a.
Surat Citv distribution 030 Yes Yes No
Total 1810 12 05 27s90
Notes Comrnilmr nti are considerablv in excess of terminal capacity However,
estimated offtake ir taken only at about 75% of commitments.
Moreover. additi,na 'upphies fr(m the Guiarat onshore fields are possible
Source GAIl
.53 D
INDIA Annex 2.4
GAS FLARING REDUCTION PROJECT Page 1 of 1
Gas Prices
Prices of Gas and Altemative Fuels in Majo1r Sectors, 1991
Price aR per 1OOm3)
4000-
Not-back values Rs 2200 - 3000
3000 Net-back values Rs 2500 - 2700
- --- ------- --~~~~~~~~~~~~~~~~~~~~~----------------
2000 ~~~Gas price along HBJ (Rs 2350) e Nt-akvls
2000-
Net-back values
IRs 1300 - 1 500
- --- --------------~~~~- -- - - ---- - - - - -
Gas price at landfall points (Rs 1500) OR
10001
Petro-
dhemials Power Fertilizer
Industry
Naphtha Coal Subsidized Naphtha
Fuel-il
Rs3632 Rs2446 Rs2242
Rsl713
0-1
8.70 38.85 24.10
10.91
Gas commitments (MMCMD)
Note. AU prici in this figue we expraed in terms of their thermal equivalents of
1000m3 of gas
1. The figure above provides a comparison of the value of natural gas in
major end-uses, the
manufacture of petrochemicals and fertilizer, power generation and industrial uses.
The 'replacement
value' of natural gas is given by the price of the fuel which gas could potentially
replace 'at the margin', --
naphtha in the petrochemical industry, coal in power generation, (subsidized)
naphtha in the fertilizer
industry and fuel oil industrial uses of gas. In addition to these replacement
values for natural gas, the
figure above shows ranges of net-back values of natural gas and the prices of gas
at landfall points as well
as along the HBJ gas pipeline. The netback values provide an indication of the
value of gas in a particular
industry. It has to be kept in mind that these net-back values are plant and
therefore location-specific; at
best, they serve as an indicator of the maximum price users would be willing to pay
for gas.
2. The conclusion that can be safely drawn from the information
presented in the figure above
is that gas sold at landfall prices provides an attractive alternative fuel in all
major end-uses. Along the
HBJ pipeline, some users may find gas at the currently proposed prices
unattractive, and may be unwill-
ing to switch to gas. However, since the prices of alternative fuels (naphtha,
coal, fuel oil) will most likely
change as will transport charges for these fuels, the demand for gas along the HBJ
will depend on relative
fuel prices at specific locations.
-54 -
INDIA Annex 3.1
GAS FLARING REDUCTION PROJECT Pag I of I
Oranization Chart of the Oil and Natural Gas Commission
Ioea Mora ExcuL C hmittZ
(CmorteMampgaeot)
ISertary to
Commlulson :
Excudtive Diector
(Seunity & Vglne
_ Member Member Mem lerMember Ma*Mer
(Dr/IIiing) (Operation) 1k(Tednkl) (Penonnd) (Fmance |
(Part-lme)
l l ; _ I l I [ _ t- l
r~~~~~~~~~~~~~~~~~(prtTtw
P ~ ~Cuhp GNuP GNuP Gimp
Gmup |(Nlt-ill)
i ' I l l ~~~~~~ID Cena aRdt 01 DL; D
lor
DiEMag ~~mana Eag Oan (Ntlwm RBC CSmAthm
, l 1, W v) | 1, ~~~OAarbs) IT |R IC|
Grap GCmup
.'ir 330dr GI Puida Ga. I . . .
d d | l |G~~~~~~~~~~~~~COp l G.nfa
IMa 1nIaaim)
I IIIEC I l l ~~~~~~~iflnl (Adn l
|GupGmt |
R| P Gp.)
RaamamGp.)
aAttutfa of
DmbpwerA
- t~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
- 55 -
INDIA Annex 3.2
GAS FLARING REDUCTION PROJECT r
Summary of ONGC's Accounting Practices
In fiscal year 1986, ONGC changed its accounting practices to bring them into line
with
international oil industry practice. The results for 1981 to 1985 have not been
restated and are therefore
not fully comparable with the accounts for the later years. The Comptroller and
Auditor General of India
observed that until 1989, the "Successful Efforts Method of Accounting" had not
always been correctly
applied. These problems have now been corrected.
2. Until 1985 it was ONGC's policy to write off exploration and
development costs as follows:
* ExpLORAmoN. Geological and geophysical survey costs are expensed in the
fiscal year in
which they were incurred. All exploratory drilling costs were initially capitalized
and
year's expenditure was amortized equally over 15 years. In case of unsuccessful
efforts, the
license was surrendered and net amortized costs were expensed against income in
three
equal annual installments. In case an area was declared successful, amortized costs
were
transferred to producing properties.
ouPRoDucNC PRoPERnEs. The oil and gas producing properties included unamortized
explor-
atory drilling costs and costs incurred on development of the producing field.
These
properties were created when regular production was started from the field
regardless of
the level of productionand were depreciated equally over ten years. Subsequent
develop-
ment drilling costs were depreciated in a manner where total costs were charged
against
income during the remaining ten year period. Development costs after the tenth year
were
charged against income of the year.
3. Following the practices of most international oil companies, ONGC
changed its accounting
practices to the "Successful Efforts Method of Accounting" in 1986. Accordingly:
(a) geological and geophysical survey costs and exploratory drilling costs (net of
amortization)
in areas declared unsuccessful and surrendered have been expensed in the year of
account;
(b) exploratory drilling costs (net of amortization) in respect of areas yet to be
determined as
successful or abortive, have now been capitalized as "Wells-in-Progress" and
(c) all accumulated exploratory drilling costs and development costs for
successful fields,
including related facilities, have been capitalized. These costs have been taken
net of amorti-
zation, depletion and depreciation already charged until previous years (without
disturbing
the past adjustments) and have been expensed following the "Unit of Production
Method"
by individual field or basin. The unit rate has been worked out taking the net cost
as of
April 1, 1985 and year's addition with reference to recoverable reserves as of
january 1, 1986.
The recoverable reserves have been limited to A, B, and C-1 categories of reserves.
- RESEARCH AND DEVELOPMENr coCs other than on Capital Assets are charged
against
income as incurred.
- DEPRECATION. Plant and equipment and other capital items are stated at cost
and then
depreciated on diminishing balance method at the rates set forth in the Income Tax
-56-
INDIA Annex 3.2
GAS FLARING REDUCTION PROJECT Page 2 of 2
Summary of ONGC's Accounting Practices
Act, 1961, except the Research and Development Equipment which is depreciated on
straight line method on five equal annual installments.
INvEwroRiEs. The stocks of crude oil from C1'F point onwards in saleable condition,
and that of LPG and NGL in storage tanks, are stated at direct cost. Gas stocks in
pipeline are not taken note of as it is not possible to measure such stocks.
Inventories
of stores and spares and assets for replacement are stated at cost.
FoREICN CURRECY TRANSACnONS. All expenditure incurred and liabilities undertaken
in the form of loans drawn and/or other liabilities are provided at the exchange
rate
prevailing on the date of the transaction. These liabilities are recogni7ed, on the
last
day of the accounting year, at the mean of the buying and selling rate of exchange
prevailing on that date. The difference arising out of such adjustments and also
changes in the value of cash balance and other adjustable advances held abroad are
adjusted to the relevant head of account wherever feasible, otherwise to the Profit
and
Loss Account.
LONG TERM DERTS. The practice of considering the portion of the Long Term Debts
maturing for payment in the ensuing year as a current liability was discontinued
after
March 31, 1988.
CoRPoRATE TAXFS. Taxes are levied on income determined after providing for amorti-
zation and depletion in accordance with the provision in the Agreement with the
Government under Section 42 of the Income Tax Act, 1961. For Corporate Tax
purposes, total depreciation charged, whether allocable to production and
transporta-
tion activities or to exploration and development activity, is considered as an
item of
expendituire against year's income.
Note: All years refer to Indian fiscal years starting on April I
-57-
INDIA Annex 3.3
GAS FLARING REDUCTION PROJECT Pa-ge T6T
ONGC Sales and Revenues, 1981 to 1990
Fisci year ending March 31 1981 1982 1983 1984 1985 1986
1987 1988 1989 1990
Summary of (net) volumes sold:
Crude oil, offshore (mill. tons) 4.8 7.3 12.3 16.9 19.6 19.8
20.6 19.7 20.7 20.9
Crude oil, onshore (mill. tons) 4.2 5.2 5.3 5.7 6.0 6.5
7.0 7.5 7.9 8.8
Total crude oil 8.9 12.4 17.6 22.6 25.5 26.3
27.7 27.1 28.5 29.7
Natural gas, offshore (MMCM) 292 514 1,000 1,485 2,050 2,518
4,265 4,952 5,852 7,438
Natural gas, onshore (MMCM) 680 716 751 738 740 791
777 921 1,060 1,172
Subtotal natural Vas 972 1,230 1,857 2,223 2,790 3,308
5,042 5,873 6,932 8,610
LPG (mill. tons) 0 73 161 196 242 320
450 502 680 718
NGL (mill. tons) 0 0 25 38 52 68
138 239 379 591
Revenues (Rs mill.)
Crude oil 3,466 11,764 21,537 31,422 35,525 38,180
48,037 49,492 53,706 63,169
Natural gas 502 807 1,363 1,842 3,077 4,162
7,263 9,659 11,899 14,318
LPG 0 127 295 367 442 587
84 508 1,944 1,592
Other revenues 550 788 661 1,097 1,305 950
131 1,414 2,175 2,248
Total revenues 4,518 13,485 23,856 34,728 40,350 43,879
56,274 61,073 69,724 81,327
Average revenues
Crude oil (Rs per ton) 389 946 1,225 1,393 1,392 1,454
1,737 1,826 1,882 2,127
Natural gas (Rs per 1O0O ml) 517 656 734 829 1,103 1,258
1,440 1,645 1,717 1,663
LPG (Rs per ton) 1,734 1,830 1,879 1,830 1,831
1,872 1,012 2,858 2,217
Note: Other revenues include: Pipeline revenues, NCL sales, receipts from contcts,
etc.
-58-
INDIA Annex 3.4
GAS FLARING REDUCTION PROJECT Page 1 of I
ONGC Income Statements, 1981 to 1990
F ik yur iduwMsrd31 1981 1982 1983 1984 1985 1986
1987 198 1989 1990
Revenues
Oil rvewnues 3,466 11,764 21,537 31,422 35,525 38,180
48,037 49,492 53,706 P4,169
Naturel reg enues 5W 807 1363 1,842 3,077 4,162
7,263 9,659 11,899 14,318
Other revenues 550 915 956 1,464 1,747 1,537
974 1,922 4,119 3,840
Total revenue 4,518 13,485 3,856 34,728 40,350 43,879
56,274 61,073 69,724 81,327
Royalties, exdee ces and sks tax 858 2,735 4,379 9,049 9,762 12,781
21,773 24,597 28,110 37,215
Total revenues retained 3,660 10,750 19,477 25,679 30,588 31,098
34,501 36,476 41,614 44,112
Expenses
Cash operatlng ctob 732 1,224 1,630 1,985 2,969 3,342
3,929 4,614 5,012 6,481
Other expenditures 1 247 180 621 1,224 987
1,688 875 4,8& 2,428
Depreciation 984 1,282 2,822 2,592 4,289 2,178
2,103 3,342 2,946 3,027
Depletion 430 683 1,151 2,160 2,617 1,466
1,923 2,064 2,466 4,50
Amortization 372 721 992 1,360 1,887 2,717
2,594 4,412 4,614 6,468
Total Operating Expenses 2,718 4,157 6,775 8,718 12,976 10,690
12,237 15,307 19,900 22,907
Operating income 942 6,593 12,702 16,961 17,612 20,408
22,264 21,169 21,714 21,205
Less: Interest2 476 862 873 884 1,338 1,580
1,214 746 769 997
Corporate Taxes 1,975 4,900 8,020 7,450 5,960
6,205 5,347 4,930 3,970
Net Operating Income 466 3,756 6,929 8,057 8,824 12,868
14,845 15,076 16,015 16,238
Dividends 204 214 274 309 326 343
360 403 514 549
Net Income Retained 262 3,542 6,655 7,748 8,498 12,525
14,485 14,673 15,501 15,689
Ratios:
Normnal Operating Ratio
(Sr.ss revenues) 60 31 28 25 32 24
22 25 29 28
Operating ratio (revenues retained) 74 39 35 34 42 34
35 42 48 52
Return on total equity 16 49 48 37 31 32
27 21 19 16
Return on net average flxed assets 36 39 31 28 31
28 23 21 19
Return on capital employed 9 25 28 24 21 22
20 17 16 14
Dividend as percent of total equity 3 2 2 1 1 1
1 1 1 1
Notes:
"indude year end revaluation
vnet interet payment
.59 -
INDIA Annex 35
GAS FLARING REDUCTION PROJECT Page lofl
ONGC Sources and Applications of Funds, 1981 to 1990
Rs millim
FiwMlyr migMn* 31 1981 1982 1983 1984 1985 1986
1987 1988 1989 1990
sour"
Operating income 951 6,619 13,008 17,736 18,277 21,070
23,344 22923 24,483 25,076
Additions (deduwo1ns)
Depreciation 984 1,282 2,822 2,592 4,289 2,175
2,108 3,342 2,946 3,027
Depletion 430 683 1,151 2,160 2,60 1,466
1,923 2,064 2,466 4,503
Amortization 572 721 992 1,360 1,887 2,717
2,594 4,412 4,614 6,48
Others (nct) 14 129 81 205 (39) 189 (702)
50 129 375
Year end revaluation 247 180 621 1,224 987
1,688 875 4,862 2,428
Net internal cash generation 2,951 9,681 18,234 24,677 28,245 28,607
30,950 33,666 39,500 41,877
Borrowings
Domesticborrowings 1,119 559 9 432 60 80
43 22 15 -
For. curr.loansonlontbyGOI 349 2,142 1,000 1,150 684 930
760 1,600 1,000 1,350
lnt.cap. narket borrowings by ONGC 1,025 801 4,027 980 1,663 2,809
13,733 7,865 8,401 16,117
Suppliers/buyers credits ONCC 310 2,464 634 2,347 79
0 43 546
Subtotal total borrowings 2,493 3,812 7,500 3,196 4,754 3,898
14,536 9,530 9,962 17,467
Governnment funds 55
Total Sources 5,499 13,493 25,734 27,873 32,999 32,505
45,486 43,196 49,462 59,344
Applications
Acquisition of Capital Assets 2,729 5,729 9,169 9,461 11,251 11,555
11,560 10,306 12394 17,889
Exploration & Devt. Expenditure 1,530 2,376 4,420 5,524 5,466 5,808
7,398 8,652 10,897 13,106
Total capital expenditure 4,259 8,105 13,589 14,985 16,717 17,363
18,958 18,958 23,291 30,995
Long-term investment and PSU loans 3,895 1,003 128 298
1,445 9,180 13,088 5,589
Debt service: principal repayments 475 417 1,112 1,269 1,894 2,496
11,050 5,356 2,888 8,806
Interest 485 888 1,179 1,659 1,993 2,242
2,294 2,500 3,538 4,868
Subtotal debt service 960 1,305 2,291 2,928 3,887 4,738
13,344 7,856 6,426 13,674
Corporate tax 1,975 4,900 8,020 7,450 5,960
6,205 5,347 4,930 3,970)
Dividends 204 214 274 309 326 343
360 403 514 549
Increase (decrease) in working capital 68 1,884 752 617 4,457 3,758
5,201 1,428 1,184 4,650
lncrease (decrease) in intangible assets 8 10 33 11 34 45
(27) 24 29 (83)
Total applications 5,499 13,493 25.734 27,873 32,999 32,505
45,486 43,196 49,462 59,344
Debt srvice coverage 3.1 5.9 5.8 5.7 5.3 4.8
1.9 3.6 5.4 2.8
Self financing ratio 45 56 104 94 75 83
40 149 172 81
Net working capital 698 2,901 3,576 4,205 8,791 12,512
17,571 18,942 19,987 24,609
Notec Variadon in working capital may not appear consistent with balance sheets,
due to accounting tteatment of fixed aset addition, the curret
patlmn of long-tam debts and of gatulty, which is not considered by ONGC as a curnt
liabilty.
-60-
INDIA Annex 3.6
GAS FLARING REDUCTION PROJECT Page 1 of 1
ONGC Balance Sheets, 1981 to 1990
Rs million
FiJlymr.iRgIMarcul31 1981 1982 1983 1984 1985
1986 1987 1988 1989 1990
Cunent Assts:
Cohb &Bank 31 151 168 92 96
337 884 5 1,025 2,065
Debtos (net of provisions) 563 2p26 3,216 2,506 4.046 3,979
5,041 62.62 8,338 16,954
Inventories 2,2W5 3,037 4,00 466 5,910 8,8
10,811 11,104 11,640 12,166
Other current asse 1,343 3,689 9,873 18,264 28,318
30,305 27,803 27,055 24,960 29,726
Subtotal Ament asts 4,193 8,903 17,262 25,528 38,370
43,41 44,539 44,526 45,963 60,911
Net flxed ansts
Property, plant and equipment 4,561 4,988 8,780 12,181 13,239
20,894 24,450 22,966 21.6 24,424
Producng property 1,I67 2,476 3,66 4,C13 533 9,851
15,149 21,711 30,.95 39,834
Capital works in progres 232 719 1,.51 2.650 3,729
1,342 2,982 3,154 2,512 4,555
Othr fixed aeebs 1,983 5,028 5,129 6,770 9,673
9,114 7,519 7,949 11,491 12,040
Unalloated capital expenditure 1,795 2,271 4,785 6,731 8.014
10,807 14,146 17,317 19,934 19,064
Subtotal 10,211 15,482 24,091 33.145 40,188
52,006 64,246 73,117 86,358 99,907
Long-term investments 250 250 4,145 4,168 4,296
4,921 6,693 15,199 26,447 30,156
Loans to :.SUs 980 980 653
327 1,000 2,840 4,720
Intangible assets 248 395 424 234 1,149 352
405 666 695 3,860
Total ssets 14,902 25,030 45,922 S4,055 84,963
101,425 116,210 134,508 162,303 199,554
Liabilities and equity
Current liabilities:
Current portion of long-term debt' 417 712 1,274 1,9% 2,149 3,005
2,353 2,681
Provisionfort x andgrstulty 896 2,305 7,203 15,283 22,783
21,768 20,064 18,097 17,147 21,146
Other current liabilities 2,180 3,7Q0 6,483 6,040 6,796
9,211 6,904 7,487 8,829 15,156
Subtotal current liabilities 3,495 6,717 14,960 23,319 31,728
33,964 23,321 28,265 25,976 36,302
Long-term debt (unsecured & deferred) 5,511 8,864 14,857 16,883 20,894
22,398 27,356 32,037 46,571 s7,728
Total equity
Capital 3,428 3,428 3,428 3,428 3,428 3,428
3,428 3,428 3,428 3,428
Reserves & surplus 2,468 6,021 12,677 20,425 28,933
41,615 56,105 70,77h 86,328 102,096
Subtotal total equity 5,896 9,449 16,105 23,853 32,361
45,043 59,533 74,206 89,756 105,524
Total liabilities and equity 14,902 25,030 45,922 64,055 84,963
101,425 116,210 134,08 i62,303 199,554
Current ratio 1.2 1.3 1.2 1.1 1.2
1.3 1.5 1.6 1.8 1.7
Long-term debt-equity ratio 0.9 0.9 0.9 0.7 0.6
0.5 0.5 0.4 0.5 0.5
Accounts receivable (days) 45 55 49 26 37
33 33 38 44 76
Note: IPractice of showing curent portion of long Wm debts a acwrrnt iabtlids has
bon dlacotntinued sice 1969.
-61 -
INDIA Annex 3.7
GAS FLARING REDUCTION PROJECT Page 1 of
3
Performance Parameten
ONGC: Average Wellhead Cost of Natural Gas, 1982 to 1990
Rs per lOm'r0
Fisdyear ending March 31 Onshore Onshore Offsho Offshore Avne AwFr
Rieentiwn Price
Curre"t Constant CurCnt Cnstnt Curnt Contat Current Contsnt
Pries Prices Prics pris Pric prim Prices Prim
1962 326 326 759 759 507 509
1983 367 350 545 520 474 452
1984 409 362 553 490 50 446
1985 781 650 614 511 658 54
1986 595 474 482 384 508 405
1,400 1,116
1987 777 586 384 289 444 335
1,400 1,055
1988 1,249 870 423 295 547 381
1,400 975
1989 2,570 1,666 583 378 886 574
1,400 907
1990 2,124 1,307 668 411 859 529
1,400 862
Notes: Constant prices haw been expresd in 191I/8 tms
Source: ONGC
ONGC: Average Wellhead Cost of Crude Oil, 1962 to 1990
Rspertcm
Fisl yer ending March 31 Onshore Onshore Offshore Offsho Avrge Average
Retention Price
Curret Constant Currn Constant Current Cout t Cuet Constant'
Prices Prices Prices Prims Prices Prics Prices Prics
1982 201 201 326 326 2Th 273 968
968
1983 264 252 341 325 317 302
968 923
1984 392 347 294 260 319 283
968 857
1985 458 381 43O 358 436 363 968
806
1986 356 284 269 215 291 232
968 772
1987 401 302 275 207 307 231
968 729
1988 403 281 281 196 315 219
968 674
1989 553 358 321 208 385 250 968
627
1990 608 374 386 238 453 279
968 596
Not: 'Prices a-e expresd in constant 1981/C2 terms
Soume: ONCC
-62 -
INDIA Annex 3.7
GAS FLARING REDUCTION PROJECT Page 3 of 3
Performance Parameters
ONGC: Proved Developed and Undeveloped Reserves and Balance of Recoverable
Reserves,
1985 to 1989 '
Oil in miion toes anrd gas in bWIlim bic mtew
CaklA r yars 1985 1986 1987
1988 19f Totals
027 Gas OCi GCs V GM 0R c 0 G 0 Gos
Beginning of the year 450.96 408.77 505.03 424.57 52525 465.41
583.18 500.27 66555 56728 450.96 408.77
Revision of upgrading/resting 60.25 7.48 25.09 12.92 67.68 16.24
16617 28.50 6.91 9.45 176.10 74.59
Coanges due to developnent drlling 1.42 0.14 (5.94) 24.07 (1.23) 035
5.05 1.00 4.80 2.22 4.10 27.78
Extensions and discoveries 19.66 14.51 29.34 14.15 20.06 27.42
89.70 49.35 49.79 37.56 20657 142.99
Production 27,26 6.33 28.27 10.30 28.60 9.15
28.55 11.84 31.13 14.59 143.81 52.21
End of the year 505.03 424.57 52525 465.41 563.18 50.27
665.55 567.28 695.92 601.92 695.92 601.92
Memo items:
Raerves-to-productlon ratio 18.5 67.1 18.6 45.2 20.4 54.7
23.3 47.9 22.4 41.3
Not:
'Proved rneserves ae the etimated quantiti of l and g which geooil and gi tng data
den -trated wlthr reonable cwtanty to be
recverable in future years from known resavois under edsting economic and oprating
nditione
Average cost of drnlling, 1981 to 1Q90 %
Cnshm Offsore Exlrptoy Development Average
Fiscal ywr ending March 31 Cost per meter Cost per meter Cost pr mter
Cost per meter Cost per meter
Rs. US$ Rs. US$ Rs. US$ Rs. USS Rs. USS
1981 4,790 607 12,584 1,594 9,002 1,141 4,417
560 7,216 914
1982 2,975 333 15,896 1,780 7,153 801 7,718
864 7,452 835
1983 3,703 385 16,645 1,729 8,563 891 P205
852 8W346 867
19B4 5,593 542 16,841 1,633 12763 1,238 8,418
816 10,132 983
1985 5,216 ' 9 17,348 1,45 14,402 1,212 7,777
654 10,655 896
1986 6,505 532 16,496 1,348 12,957 1,059 6,220
508 9,497 776
1987 5,925 463 17,496 1,368 13,519 1,057 5,07G
396 9,112 713
1988 6,513 502 17,050 1,315 14,389 1,110 5,524
426 9,513 734
1989 6,720 415 16,027 989 16,027 989 6,720
415 9,790 604
1990 6,348 357 18,610 1,046
9,631 541
Note:
2 Drilling ct are the average costs of exploratory and development drilling,
Including depredation, trnportation of rip, and drilling and production
testing.
Source: ONGC
-63 -
INDIA Annex 3.8
GAS FLARING REDUCTION PROJECT Page 1 of T
ONGC's Investment Program, 1991 to 1995
Milio Rupes (at 1991 Prim)
Fscl yar ending March 31 1991 1992 1993
1994 1995 1991-95
Ongoing Pject
Accelerated Production Plan Bombay High 74 32
106
Heera Phase 11 Oi development 2,319 100 931
3,350
Gas lift Bombay High 1,278 497 178
1,953
BH 22 Ollfield development (near Bombay High) 95 60 84
240
BH 25 Oilfield m.velopment (near Bombay High) 119 60 26
205
Uran Gas Fractioiing Plant (C-C3 extraction) 335 65
400
Hazira Gas Sweetening Plant If 402 246 176
823
Cambay Basin Petroleum Project 285 190 ; '9
653
Additional oil recovery Bombay High South 182 28
21U
Additional oil recovery Bombay Hfigh North 230 136 32
396
2 Jack-up rigs (offshore dril'ing) 135
135
Regional computers 61
61
Assam area captive power plant 33 13
45
Land development driling rigs 33 12
45
South Bassein- Phase 11 residual drilling 126
126
Gandhar I Development (Cambay Basin) 456 198 168
822
B131 Devel<okment (Neelam Field) Bombay offshore 77 30 39
146
B57 DeveloF ment (Mukta Field) Bombay offshore 77 30 22
129
South Bassein I 8
8
Total orgoir g projects 6,263 1,757 1,835
9,855
Development Schemes
Panna field (Bombay offshore) 408 1,250 2,472
2,749 2,000 8,880
Neelam field (Bombay offshore) 325 2,500 5,710
3,100 3,296 14,930
Mukta Field (Bombay offshore) 80 100 3,745
4,295 4,000 12,220
L 11 (oil only) 118 2,822
648 3,588
Llil (oil only) 2,495 3,898
1,502 1,001 8,896
Gas Flaring Reduction Project 1,278 15,492
17,843 12,531 47,145
Candhar If Development 303 400 2,275
2,144 80 5,201
Ravva Development 464 265 289
428 1,736 3,181
Crude Desaiter(Cambay) 20 iS0 240
70 480
Kerosene Recovery Unit (Hazlra) 6 50 200
274 530
Natural gas liquids refoener 0 500 733
733 733 2,700
Cambay onshore oil pIpeline 4 4
42 50
BPB Hazira Pipeline
3,240 3,240 6,480
Usar oi terminal
10 10 20
ICP- Heera Pipeline 5 5
10
Total development schemes 1,609 9,110 37,866
33,839 25,387 107,811
Other Capital Acquisition 5,575 6,137 1,490
1,450 1,348 16,000
Grand total Capital Acquisition 13,447 17,004 41,191
35,29 26,735 133,665
Surveys 1,429 1,306 1,040
1,030 1,050 5,854
Exploration Drilling 10,704 10,104 5,320
4,040 4,700 34,868
Development Drilling 5,314 6,513 4,000
4,350 2,510 22,687
Subtotal Exploration and Development 17,447 1,922 10,360
9,420 8,260 63,409
Resarch and Development 600 934 740
710 520 3,504
Grnd Total 31,494 35,860 52,291
45,419 35,S15 200,578
-64-
INDIA Annex 3.9
GAS FLARING REDUCTION PROJECT g'eToF
ONGC Revenue Projections, 1990 to 1995
FiywretdingM arch31 1990 1991 1992 1993
1994 1995
Summary of net volumes sold
Crude oil, offshore (mill. tons) 20.9 20.3 20.4 19.7
24.5 29.2
Crude oil, onshore (mill. tons) 8.8 9.1 10.7 12.0
13.5 14.3
Subtotal crude oil 29.7 29.4 31.1 31.8
38.0 43.5
Natural gas, offshore (MMCM) 7,48 8,250 9,100 12,717
15,892 17,187
Natural go, onshore (MMCM) 1,172 1,625 2,070 2,810
3,319 3,319
Subtotal naturl gas 8,610 9,875 11,170 15,527
19,211 20,506
LPC (1000 tons) 718 725 775 821
859 859
NGL (1000 torns) 591 740 800 800
800 800
C-2, C-3 (1000 tons) - 60 315 450
570 570
Revenues (Rs million)
Crude oil 63,169 62080 65,735 67,088
80,357 92,000
Natural gas 14,318 16,519 18,654 25,939
32115 34,310
LPG 1,592 1,544 1,650 1,748
1,829 1,829
NCL 1,116 1,338 1,446 1,446
1,446 1,446
C-2, C-3 240 1,261 1,801
2,282 2,282
Other revenues 1,132 2,nlo 2,096 1,535
1,745 1,939
Total revenues 81,327 83,730 90,842 99,557
119,774 133,806
Average' price
Crudeoioff hore(Rsperton) 2,118 2,113 2,113 2,113
2,113 2,113
Crudeoil onshore(Rsperton) 2,110 2,113 2,113 2,113
2,113 2,113
Natural gas offshore (Rs per 1000 ml) 1,673 1,695 1,695 1,695
1,695 1,695
Natural gas onshore (Rs per 1000 m3) 1,479 1,560 1,560 1,560
1,560 1,360
LPG (Rs per tan) 2,213 2,129 2,129 2,129
2,129 2,129
NGL (Rs per ton) 1,888 1,808 1,808 1,806
1,806 1,808
C-2, C-3 (Rs per ton) 4,003 4,003 4,003
4,003 4,003
Note: Other revenues include: Pipeline revenues, NGL saes, receipt from contacts
etc.
- 65 -
INDIA Annex 3.10
GAS FLARING REDUCTION PROJECT Page-1 of i
ONGC Income Statements, 1990 to 1995
Rs mvillton
Fiscal yeat eiding March 31 1990 1991 1992 1993
19'4 199I
Revenues
Oil revenues 63169 62080 65735 67088
80357 92000
Natural gas revenues 14318 16519 18654 25939
32115 34310
Other revenues 3840 5132 6453 6531
7302 7496
Total revenues 81327 83730 90842 99557
119774 133806
Royalties, excise cess and sales tax 37215 37416 40043 45073
51822 58754
Total revenues retained 44112 46314 50799 54484
67952 75052
Operating expenses
Manpower 582 799 798 921
1079 1260
Materials 1638 2078 2229 4046
5758 7248
Services 4n85 4399 4796 4270
6076 7649
Research and development 176 169 375 352
363 385
Year end revaluahon 2428 8781 5198 4420
6572 6061
Depreciation 3027 3375 3782 4034
3691 3361
Depletion 4503 5307 6161 5577
7175 9080
Amortization 6468 6332 6553 6419
7865 6493
Total operating expenses 22907 31240 29892 30038
38579 41537
Operatirig income 21205 15074 20908 2U47
29373 33515
Interest income 3871 3662 5663 6387
6194 6510
Interest paid 4868 5684 7361 9868
13080 15802
Less. Intere-t (net) 997 202t2 1698 3481
6886 9291
Corporate taxes 3970 3015 4182 4889
587; 6713
Net operating inconme 16238 10037 15029 16076
16612 17i320
Dividends 549 1055 1145 1284
1432 1 ;84
Net income rctained 15689 8982 13883 14792
15180 15937
Ratios
Operatin g ratio (gross revenues) (percent) 28 37 .33 30
32 I1
Operating ratio (revenues retained) (percent) 52 67 59 55
57 55
Return on total equity (percent) 16 11 13 14
15 16
Retirn oi net average fixed assets (percent) 19 11 13 12
12 12
Return on capital employed (percent) 14 9 11 10
10 10
Divid,-ol 'pI fwrrent of total equity (percent) 1 1 1 1
1 1
-66-
INDIA Annex 3.11
GAS FLARING REDUCTION PROJECr Page 1 of 1
ONGC Sources and Application of Funds, 1990 to 1995
Rs mitlho
FilpyendingMarch 31 1990 1991 1992 1993
1994 1995
Sources
Operating income ncl.interest income) 25,076 18,736 26,571 30,834
35,567 40,M5
Additions (deductons):
Depredation 3,027 3,375 3,782 4,034
3,691 3,361
Depletion 4,503 5,307 6,161 5,577
7,175 9,060
Amortization 6,468 6,3. 6,553 6,419
7,865 6,493
Others (net) 375
Year end revaluation 2,428 8,781 5,196 4,420
6,572 6,061
Net Intemal cash generation 41,877 42,531 48,264 51,283
60,871 65,019
Borrowings
Foreign currency loans onlent by COI 1,350 1,004 1,321 6,669
/,275 5,52
ExportcreditsandotherFCborrowing 16,117 13,378 13,584 27,703
29,146 23,555
Subtotal total borrowings 17,467 14,382 14,905 34,372
36,421 28,607
Total soumrces 43,227 56,913 63,170 86,655
97,22 93,426
Applications
Total capital expenditure 30,995 31,494 37,848 57,472
52,227 42,940
Long-term investment and PSU loans 5,589 19,062 6,894 (1.843)
3,014 8,874
Debt service: principal repayments 8,806 5,121 3,071 9,007
15,616 13,279
Interest 4,868 5,684 7,361 9,868 13,080
15,802
Subtotal debt service 13,674 10,805 10,432 18,876
28,696 29,081
Corporate tax 3,970 3,015 4,182 4,889
5,875 6,703
Dividends 549 1,055 1,145 1,284
1,432 1,584
Inaease (decrease) in working capital 4,650 (8,518) 2,668 4,978
6,048 4,445
Increase (decrease) in intangible assets (83)
Total applications 59,344 56913 63,170 85,655
97,292 93,626
Debt service coverage 2.8 3.7 4.2 2.5
1.9 2.0
Self fLnancing ratio (percent) 81 ;79 100 36
45 78
ONGC's Foreign Exchange Requirements, 1991 to 199S
USS million
2500 9 1 9flaring1pro9
|Lll - Lillproect
2000 Other capital expenditure_
_CGsh operating cost1
Debt serviceI I
1500
1000
0 -99 1992 1993 1994
1995
-67-
INDIA Annex 3.12
GAS FLARING REDUClION PROJECr Pa-ge1onf1
ONGC Balance Sheets, 1990 to 1995
Rs miliw
Fiw yar endmg Marc 31 1990 1991 1992 1993
1994 1995
Assets
Current s
Cash and bank 2,065 2,234 2,460 2,877
3,982 4,963
Debtors (net of provisions) 16,954 6,467 6,781 6,824
8,232 9,309
Inventories 12,166 13,966 14529 21,5M
25,522 28,402
Other current assets 29,726 29,726 31,668 33,748
35,941 38,170
Subtotal current assts 60,911 52,393 57,457 64,950
73,677 80,844
Net fixed assets
Property, plant and equipment 39,825 39,967 44,027 52,951
61,067 6S,502
Producing property 39,834 47,991 58,077 80,729
1E3,041 115,407
Unallocted and work ir. proges 20,248 23,429 35,636 45,504
48,572 54,776
Subtotal 99,907 116,387 137,741 179,184
212,679 236,685
Long-term investments 30,156 49,218 56,112 54,268
57,282 66,157
Loans to public sector undertakings 4,720 4,720 4,720 4,720
4,720 4,720
Intangible assets 3,860 3,860 3,860 3,860
3,860 3,860
Total assets 199,554 226,578 299,890 306,982
3529 392,265
Liabilities and equity
Current liabilities:
Provision for tax and gratuity 21,146 21,146 22,542 24,007
25,567 27,152
Other current liabilities 15,156 15,156 16,156 17,206
18,325 19,461
Subtotal current liabilities 36,302 36,302 38,698 41,213
43,892 46,613
Long-term debt (unsecured & deferred) 57,728 75,771 92,802 122,587
149,965 171,353
Total Equity:
Capital 3,428 3,428 3,428 3,428
3,428 3,428
Reserves&surplus 102,096 111,078 124,961 139,754
154,934 170,871
Total equity 105,524 114,506 128,389 143,182
158,362 174,299
Total liabilities and equity 199,554 226,578 299,890 306,982
352,219 392,26S
Current ratio 1.7 1.4 1.5 1.6
1.7 1.7
Long-term debt-equity ratio 0.5 0.7 0.7 0.9
0.9 1.0
-68-
INDIA Annex 3.13
GAS FLARING REDUCTION PROJECT Fage I of 2
Assumptions to the Financial Projections
General
1. Figures may appear not to add up due to rounding. All years relate to
Indian fiscal years
ending March3 1. The financial projections do not take into account the transfer of
assets from ONGC to
GAIL, which is anticipated to take place during 1991. The overall etect on ONGCs
financial position is,
however, expected to be neutral.
2. The exchange rates and price escalation rates used in the financial
projections are as follows:
Exchange Ra,es and Inflation Rates 1991 1992 1993 1994 1995
Exchange rates (I USS equivalent) Rs 19.4 20,8 21.8 23.0 24.1
Domestic inflation (percent) 8.3 6.6 6.5 6.5 6.2
International inflation (percent) 3.4 3.4 3.4 3.4 3.4
Source: Bank staff projections
For the year end revaluation of long term debt in currencies other than the US
Dollar, exchange rates
prevailing on December 31, 1990 are assumed to depreciate against the Rupee at the
same rates as the US
Dollar.
Income statements
3. Projected sales of crude oil and gas are based on ONGCs production
forecasts, taking into
account ongoing and planned development schemes. For the purpose of the financial
projections pro-
jected revenues assume the same producer prices for crude oil and gas as those
prevailing in FY91 (Annex
3.9) throughout the projected period. The level of royalties, excise cess and sales
tax has also been as-
sumed constant.
4. Cash operating expenses are based on ONGC's budget estimates and take
into account
requirements for increased production and intlation.
5. Deprdciation, depletion and amortization assume the continued
application of ONGC's
current accounting policies (Annex 3.2) at rates permissible under the income tax
act.
6. Average interest receipts were assumed at an average of 10.5% of
ONGC's long term
investments and ISU loans. Interest paid represent ONGC's projected annual interest
payments on its
long term debt
7. Corporate tax liability was assumed as 20% of operating income. In
line with past practices
dividend payments were assumed as 1% of total equity.
-69 -
INDIA Annex 3.13
GAS FLARING REDUCTION PROJECT Fage ToT
Assumptions to the Financial Projections
Fund Flow Statements
8. New borrowings take into account the proposed project financing plan.
Foreign currency
loans onlent by Govemment assume a 15% interest rate with a 5 year grace period and
15 year overall
maturity. New export credits were assumed at a 10% interest rate with annual
repayments of 10% of the
amnount outstanding at the end of each year.
9. Details of ONGC's planned capital expenditure are given in Annex 3.8.
The amounts have
been adjusted for inflation and fixed asset additions are based on ONGC's current
accounting practices. It
should be noted that the proposed investment program was based on ONGC and Bank
estimates and not
all expenditures have been approved by the Government.
Balance sheets
10. Current assets: Average level of cash and bank balances was assumed at
30% of cash
operating costs. Debtors assume a credit period of 21 days for crude oil, 15 days
for LPG and NGL sales
and 30 days for natural gas. The level of inventories was assumed at 12% of net
fixed assets. Other assets
were assumed to increase with domestic inflation.
11. Current liabilities were assumed to increase with inflation.
12. Increases and decreases in long term investments were determined by the
level of total
sources available after taking into account working capital requirements, debt
service and capital expendi-
ture.
-70-
INDIA Annex 4.1
GAS FLARING REDUCTION PROJECT Page Tof 4
Layout Optimization of the Pipelines to be Constructed
1. While the design of the process platforns and related gathering fluid
lines for the Bombay
High field is fairly standardized, the layout cn-eptualization of the gas trunk
pipelines requires some
attention to the optimum route in relation to potential gas markets. The principal
factors that were taken
into account in the decision of the layout of the proposed gas pipeline system
included review of the
recoverable reserves, market growth rate, consumption pattern and problems
associated with the develop-
ment of the infrastructure. The review of the Bombay High, South Bassein and
surrounding fields poten-
til indicates that the project would sustain the delivery of 30 to 35 MMCMD of gas
for the next 20 years
In addition, new offshore gas reserves are being identified north of the Bombay
offshore field towards the
Gulf of Cambay. The conceptualization of the proposed pipeline system as well as
the flow capacity of the
processing facilities have, therefore, taken into account the issue of whether the
gas should be taken to the
Bombay area or to the northern part of the country along the HBJ gas pipeline.
After a careful review of
the gas demand projections, market constraints and pattern of consumption, it is
proposed that the project
would bring gas to both the Bombay area and Hazira as wel as areas along the HBJ
pipeline.
2. The Bombay area market, where gas is mainly used as industrial fuel, is
a supply con-
strained market with long lead times for development of the necessary additional
gas supply infrastruc-
ture. This market will continue to be dependent on the Uran terminal for the next 8
to 10 years. The
supply shortfall is, however, expected to be substantially reduced with the
expansion of the terminal
which will be undertaken soon under a separate project. The terminal, which is now
supplying 12
MMCMD, will be expanded to its maximum capacity of 16 MMCMD. As the demand is
projected to grow
further, ONGC is proposing to the Government the construction of a new terminal to
increase the supply
by 10 MMCMD of gas. With regard to the market along the HBJ gas pipeline with a
current consumption
of about 15 MMCMD as feedstock for fertilizers, the demand has been less than
anticipated. There is,
however, a perceptible shift occurring in the previous policies of gas allocation
and pricing that have up to
now hindered greater gas utilization along this pipeline. The demand for gas along
the HBj is now
proiected to grow at a fairly rapid and higher rate than for the Bombay area. Power
generation is expected
to entail a big increase in gas use. Other markets, including petrochemicals, are
also being developed.
Various projections indicate that overall gas demand along the HBJ pipeline would
increase to 40
MMCMD by 1995-96.
3. The quantity of additional gas to be supplied to the Bombay area market
would be limited
to the maximum capacity (16 MMCMD) of the Uran gas terminal. To meet this
additional quantity, the
existing Uran - Heera gas pipeline would require to be extended to the Bombay High
field. It is only
through this extension, the ICP-Heera gas pipeline, that the supply of the Bombay
market can be increased
and the current gas flaring substantially reduced. Since no gas compression would
be required, the
construction of this line would have to be undertaken as soon as possible in order
to be completed simul-
taneously with the expansion of the Uran terminal. Such a line, for which the
precise route would be
determined by the detailed engineering design, could also be used for the transport
of the Bombay High
gs cap at a later date as well as associated gas from any of the recent discoveries
made in the Bombay
High field area. Furtmore, the line would optimize ONGC's contingency response
capability should
the existing old line need to be repaired. With regard to the mnarket along the HBJ
gas pipeline, it becomes
necesary that a new pipeline be built between Bombay High and Hazira. The pipeline
construction
would consist of two wgments, from Bombay High to South Bassein (SHG-BPB) and then
to Hazira.
Subeequently, the capacity of the Hazira gas terminal would need to be expanded.
-71 -
INDIA Annex 4.1
GAS FLARING REDUCTION PROJECT Pe 2 of 4
Lay-out Optimization of the Pipelines to be Constructed
4. The project optimization design carried out by ONGCs consultant EIL has
been reviewed
by the Bank and found acceptable. It is a preliminary engineering design based on
an exhaustive study of
all pertinent factors and data related to gas recoverable reserves and utilization
plans. The sizing and
broad specifications of the project facilities including the pipeline system layout
have been determined
following a careful evaluation of available alternatives. The detailed engineering
design would be carried
out by the contractor to be selected for the construction of the project component.
The current preliminary
design is sufficiently flexible to allow configuration design adjustments to be
recommended by the
detailed engineering design. Figure 1 shows the schemnatic layout of the existing
gas pipelines and those
that will be constructed under the project. Figure 2 shows the expected flows of
gas through the pipeline
system in the Western offshore region.
- 72 -
INDIA Annex 4.1
GAS FLARING REDUCTION PROJECT Pdge 3 of4
Lay-out Optimization of the Pipelines to be Constructed
Figure 1 Layout of the Pipeline System
L,egeiid
o Existing plattorrn
Pl tform to be constructed
under the project
0 00 - Existing pipeline
.Pi ' peline to be constructed
under the project .. .
3',0~~M- ' :0 ., 0 lptz
* >; A B /3agW/f MMcfp *N.,
_~~~~~~Q
,,,,,,,,,,,,,,:,,B:.:|+r ::.:::.s:1:
ri oam o0 *g
co am ox cIt
n in . fto
to m ..- lt
tot POX P71 ", zs
oil o , fnt
ftl am --l-- aI,
" am lox cog
"Ir m a9m r
am Mt _ a 1m
l~ ~~i ml _u~' WI e.9Sfl
__ 9Sl Ml Mt nc
Oh ml 10l r9
091 Mt Mil : t
oil Mt 461 006
act1 1M1 "'I t
" S VIIi ilt rol | Nl il 9fS n l
flI tOW Mil f Il
. | rC "1 1ll Ft~~~I'l rlo lct "IrG l|rw
to
lox WI 1I 91
VI"'l 7 '
I't mmo
auliadl -' 'I
' I
1mn "I n It mn
rt m ca
i 11 |ts 11 [t11 ft WC go ot
rci got1
91 ml ll M W * 0 Mt r_ IMl t 1
rlIt< 1 1IrC
*t MI Ot t ou vil a ml PI
1 1eaIb1j 1115 or s
L~~~~~~~~all '0 I M"
I 0'11 _p F
pnXsuoD aq 1 saulpdd *~C M, o uopezadId Mt oo
o~~~~~~~~~~~~~~~~~~~~~~uei rc MteS )NfOEd
galDla3 fit
-t~~~~~~~~~~~~~~~~~~~~~~~a Mtu
zolannt
VI ml crtt ull ii ourradid~~F'1-
t WI 0 1 lot IROWN-MG as m 'SdG-DHS IMVH a~~~~~~~~~~~~~~~~~~~~~-s.
UwJn-NHO~~~~~~~~~~~~~I
'IO co m re r tot wx~~~ zgamo
I 10
at co an ni r 9 rst O=~~~~~~~~~~~rnea
I I t V1.9 rt m W,~~~~~~~~~EN 9
to to Noeaomn CK M
ra ro~~~~~~~~~~~~~~'s p r a
t u
tI 9 a km1
Il 90 OWm
O I
C-otael IDId OL-0 NilNrvu v
V oUU to m
Cl Nil~ ~ ~ ~ ~ ~~~ E
- 74 -
INDIA Annex 4.2
GAS .LARING REDUCTION PROJECT Pag I of
Detailed Project Description
Background
1. ONGC has decided to implement a najor investment program aimed at
enhancing oil
production in the Bombay High oilfield. This oilfield, which is about 160 km west-
northwest of Bombay
and in the Arabian Sea, accounts for about two thirds of the country's current oil
production of about 32
million tons a year. The field was discovered in 1974 and put on production in
1976. The program
consists of further development of proven oil and gas reserves of the field's only
producing reservoirs, L-
III and L-II. It is part of a long-tern development scheme, which has been carried
out in time phased
sequences to allow a better delineation and understanding of the field's priarry
producing mechanism.
2. L-III REsRvoiR. This reservoir accounts for about 90% of the field's
total oil-in-place reserves
of about 1500 million tons. It extends within the entire field area at an average
depth of 1300 m. An East-
West sedimnentary discontinuity divides the field into two sectors, the North and
the South. About one
third of the L-1I1 oil reserves is located in the North and two thirds in the
South. Oil production from L-III
North started in 1976 and reached a plateau rate of 6.25 million tons per year in
1980. It started to decline
in 1987. In 1990 it produced about five million tons per year. The decline in
production was largely due
to the shutting of several welkl as a result of delays in implementing the pressure
maintenance and gas-lift
programs. By the end of 1990, the cumulative production from L-l1 North had reached
about 68 million
tons of oil and 21 billion cubic meters of gas, representing about 18% of the
initial in-place reserves. Oil
production from L-lI1 South started in 1980 and reached a level of about 13 million
tons per year in 1983
and maintained between 13 and 15 mnillion tons per year thereafter. By the end of
1990, the cumulative
production from L-III South had reached about 113.5 million tons of oil and 28
billion cubic ineters of gas,
representing about 12% of the initial in-place reserves.
3. L-il REsERvoIR. The L-II reservoi:, which accounts for slightly less
than 10% of the field's
total oil reserves, is located only in the northern part of the field at an average
depth of 950 m. It has a
limited oa column thickness of 25 to 30 m. It remained undeveloped because ONGC
devoted its efforts to
first develop the L-III reservoir. Its performance, however, has been conclusively
tested by some 20
production wells. Some of these wells have been producing oil since 1981. Its
production rate has reached
one million tons per year of which two thirds comes from four horizontal wells
drilled over the past four
years. The L-Il reservoir will now be developed and is expected to sustain a
production level of about 1.5
million tons per year of oil and two million cubic meters of gas for the next 10
years.
Program for Enhancing Oil Production From the Bombay High Oilfield
4. A feasibility study, carried out in 1987 and 1988 by ONGC with the
assistance of the French
oil company CFP Total, indicatea that the Bombay High production can be
substantially increased and its
overall decline delayed by developing the westem and southem peripheral areas of
the L-1lI reservoir in
the South and the L-II reservoir in the North. The L-III reservoir development, the
largest program,
would consist of construction of eight well platforms with the drilling of 78
infill wells, a process platform,
a water injection platform, an interconnecting gas pipeline system and two trunk
gas pipelines, one to the
Hazira Gas Terminal (located about 260 km north of Bombay in the southem part of
the Gujarat State) and
the other to the Heera field (located about 70 km southwest of Bombay in the
Arabian Sea) where it would
be connected to the existing Heera-Uran gas pipeline which is currently supplying
about 1.5 MMCMD of
-75 -
INDIA Annex 42
GAS FLARING REDUCTION PROJECT Page 2 of 8
Detailed Project Description
Figure 1 NQP Proce" Piatform Flowsheet
FUelPS A>[<gLlrEFue
e,*,,,, ,*...>,.......................
~~~~~~3tge0:0s PL ~WI1:-.:::
...... . . ....... , J.. ..
conditire weNc
packag
s s ,, ss ,, ........ ., , .. j,. ......
gas from Heera to the Uran Oil and Gas Terminal (about 15 Jr. southeast of Bomnbay)
for the Bombay area
narket. rae L-III program is expected to increase the production by about 40
million tons of oil and 18
Bcm of gas during the 1B95-2010 period. The L-11 reservoir development will cons.;t
of construction of
five well platforns with the drilling of 42 infill wells, a process platform and an
inter-connecting gas
pipeline system. The L-II vrogram is expected to increase the production by at
least 16.5 million tons of oil
and 6 Bcm of gas during the 1995-2010 period.
5. To accommodate the additional production, ONGC is expanding the gas
processing capac-
ity of the Uran terminal frn.n 12 to 16 MMCMD, ar.d that of the Hazira gas terminal
from 20 to 41
MMCMD. The expansion feasibility and environnental impact studies for the Hazira
terminal are
expected to be submitted for Government approval within the first quarter of 1991.
Furthermore, cor.-
struction of an additional oil and gas terminal with a first phase processIng
capacity of 10 million tons of
oil pei, year and 10 MMCNMD of gas is being studied by ONGC's consultant, Engineers
India Ltd. Accord-
- 76 -
INDIA Annex 4.2
GAS FLARING REDUCTION PROJECT Page3oB
Detailed Project Des3ription
ing to ONGCs current plans, this terminal will be built at Usar, some 40 km south
of Uran. It would
increase the gas supply of the Bombay area from 16 to 26 MMCMD. lmplementatio*. of
the entire pro-
gram, including construction of the terrninals, is planned to take seven to eight
years. DL velopment of the
Bombay High L-III and L-ll reservoirs along with construction of related gas
pipeline systems and expan-
sion of the Uran and Hazira terminals is expected to be completed during the first
five years of the devel-
opment program.
Project Proposed Project
6. The project proposed for Bank financing would provide support for those
components of
the Bombay High development program that are required to eliminate the flaring of
associated gas. The
project would enable ONGC to recover an additional 7 to 8 MMCMD of gas over and
above the 12 to 14
MMCMD of gas that are currently being flared. The project consists of
* Construction of a process platform, SHG, in the southern sector of the Bombay
High oil field
with a processing capacity of 100,000 barrels (bbl) of oil per day, 15 MMCMD of gas
and
140,000 bbl of water per day. The platform includes a 78 kilometer (km) pipeline
with a
diameter of 28 inches to the BPB platform at South - Bassein.
- Construction of a process platform, NQP, in the northern sector of the Bombay
High oil
field, with a processing capacity of 60,000 bbl of oil per day, 6.8 MMCMD of gas
and 30,000
bbl of water per day. The platform includes a 30 km pipeline with a diameter of 18
inches to
the BHN - Uran gas trunk pipeline.
* Modifications of existing platformns.
* Construction of a 142 km gas pipeline, (26 - 36 inches) from the existing
process platform,
ICP, in the southern sector of the Bombay High oil field to the Heera - Uran trunk
pipeline.
* Construction oz a 255 km trunk gas pipeline (42 inches) from South - Bassein
to Hazira.
* Expansion of the existing Hazira gas terminal.
* Engineering, project management and other implemnentation services.
* fmpiementation of a package of measures, in the Bombay High oilfield, required
by proper
reservoir management practices.
* Reservoir pcrformance and management studies and training.
* Implementation of a package of measures to reduce the environmental risks and
enhanri .he
safety of offshore operations.
7. CONSTRUCnON OF NQP PROCESs PLATFORM. This is to be a two-deck, six leg
platform with a
processing capacity of 60,000 barrels of oil per day, 6.8 MMCMD of gas b ' 90,000
barrels of water per
day. The platform will be installed in the northern part of the field in abo_. 64 m
,ater depth and con-
-77-
INDIA Annex 4.2
GAS FLARING REDUCTION PROJECT FgWo
Detailed Project Desaiption
Figure 2 SHG Process Platform Flowsheet
Cmupodty. 2., ,esD _ 0 ,,,,,,
: : -: arl s;> ..~~~~~............ ... f
,,,,, l l Fuel gs
f 1 s~~~~~~~~~~~~- ~ R c . s_ ..... ........
(12 No.) 1*11~ stgs(y.
glycolo,e:
............ ........ . ~~~~~~~~ ~ ~ ~ ~
~~~........ . ....... . .. .. .. ..'."
. ~ ~ ~ (N.
necte~ to th exstigpa tforms, N. an N , by a brdg. It wil hav faiite
fo oi, ga an wae
separa..on water treat t, g, d, fr se ' e t r ad c
sio, high p
flare to be- located at- about 750 . m away on a: tripod, fireprotection oil
pumping, te
r~~~~~~~~~A Mil I* . . . ......... .. . . .:,:.,:
- | P s ii; I J . : l*~~~~~rodcec wter i i
Llnes ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~. .. ..:. .. ... . .
flare~~~~~ ~~ ''' be located wate abu 75 m awa on
a trpd'iepoeto,olpmigeeomnctos
tolemetry, telecontrol and helideck. The platform construction will include supply
and installation of
three gas turbine driven centrifugal compressors, each designed for 2.2 MMCMD
corpression capacity at
8 to 10. k<g/cm2 suction and 103 kg/cm2 discharge pressures, supply and
construction of intc -conr.ecting
- 78 -
INDIA Annex 4.2
GAS FLARING REDUCTION PROJECT Page 5 of 8
Detailed Project De3cription
well fluid lines along with a gas pipeline to connect the platform to the Bombay
High-Uran trunk gas
pipeline.
8. CONSTRUCMON OF SHG PROCESS PLATFORM. This is to be a two-deck, eight
leg platform with a
processing capacity of 100,000 barrels of oil per day, 15 MMCM'. of gas and 140,000
barrels of water per
day. It will be installed in the southem part of the field in about 70 m water
depth and connected by a
bridge to the existing SHP and SHQ processing platforms It will have facilities for
oil, gas and water
separation, water treatment, gas dehydration and compression high pressure ilare to
be located at about
one kilometer away on a tripod, fire protection, oil pumping, telecommunications,
telemetry and
telecontrol. The platform construction will include supply and construction of the
interconnecting well
fluid lines, installation of seven gas compressor modules and construction of a gas
pipeline to connect the
platform to the BPB platform in the South Bassein gas field. The gas compressor
modules and the line
pipes will be procured separately from the platform.
9. CONSrRucION OF GAS COMPRRSSOR MODUxES. Seven gas turbine driven
centrifugal compressor
modules will be built by specialized manufacturers and supplied to the SHG platform
contractor for
installation. Each module will be designed for 2.5 MMCMD compression capacity at 8
to 10.5 kg/cm2
suction and 134 kg/cm2 discharge pressures. The primary objective of these
compressors will be to
provide sufficient pressure to transport the gas through a 330 km submarine
pipeline to the Hazira
Terminal. A small quantity of the cornpressed gas will be distributed and
circulated in the oil producing
wells to improve their productivity through gas lift mnechanism.
10. MOI)IrICArION OF E)asnNG PLATrFORMs. In order to fully integrate the
platforms NQP and SHG
into the existing process scheme, some of the existing process platforms will need
to be upgraded. Separa-
tion facilities will be overhauled and their capacity increased as more gas and
water are being produced
together with the oil from the ageing reservoirs. Acoditional lines with pipeline
scraper launchers and
receivers w ill be built between the new and existing well platforms. Piping
configuration will also be
reviewed and s:me lines changerl. Structural reinforcement will be required for
some of the oldest
platforms. Existing living quarters will be expanded to accommodate the personnel
of the new platforms.
The modifications will be c3rried out under the NQP and SHG platform construction
contracts on four
well platforms (NO, NW, NHi, and N6) and four process platforms (NQD, NQO, NQG, and
NQF) in
Bombay High North, eight wclU platforms (SY, SW, SY, IL., 1K, SS, II and IH) and
four process platforms
(SHP, SHID, SCA, and SHQ) in 13ombav High South and one process platform (BPB) in
South Bassein. The
work to be carried ouit under this component will consist of three subcomponents:
(a) Procurenment, coating and laying of 77.9 kilometers of well fluid lines in the
north and south
sectors of the Bombay High oilfield;
(b) Modification of the following existing weil platforms so that they can handle
additional well
fluids: NA, NB, NM, N2, NL, IB, ID, SM, EB, SI, SC and SA; and
(c} Modification of the following existing well platforms: BHN, NC, BHS. SCA and
iCP. Modifi-
cations would involve the production separators, produced water conditioners and
flare
systems.
- 79 -
INDIA Annex 4.2
GAS FLARING REDUCTION PROJECT Page oT
Detailed Project Description
11. CONSnRUCrION OF INTERCONNECFING AND TWUN.K PIPELINES. To optimize the
field oil and gas
gathering system and bring the associated gas to shore, new interconnecting and
trunk submarine gas
pipelines will be built under the project. The interconnecting pipelines will
consist of well fluid lines from
the process platforms to the well platforms and two gas lines from the process
platforms to the trunk gas
lines. About four well fluid lines will be built in the North (from NQP, NQO and
NQG complex to NH 8.5
km, NO 3.6 km, NW 7 km and N6 11 km) and three in the South (from SHG, SHP and SHQ
complex to SY
8 km, IL 8 km and IH 15.5 km). The two gas lirnes will consist of (i) a 30 km long,
18 inch diameter pipeline
with a flow capacity of six MMCMD (from the platform NQP to the Bombay High-Uran
trunk pipeline)
and (ii) a 78 km long, 28 inch diameter pipeline with a flow capacity of 15 MMCMD
(from the platform
SHG to the South Bassein gas field). The construction of these lines aJong with the
well fluid lines will be
carried out under the NQP and SHG platform construction contracts.
12. ICP-HEFRA PIPL:LINE. To take all associated gas to shore, two new trunk
gas pipelines will be
built under the project. The ICP-Heera Trunk pipeline, also called the South Loop,
will stretch 142 km
from the ICP platform in the Bombay High field to the HRG platform in the Heera
field, where it will be
Figure 3 Hazira Gas Terminitl Expansion Flowsheet
= ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ t -== a:=
l15.6 M;M ==_M daTeon :0 : ::CM
V MMCMD I I Y L :: : : : :7MMCM
Slu~[E -g cachr ;' : "'""''
397t/d ~ ~ ~ ri /
$35 ~ ,/ . ,.,. ... , ,. , .:,
swening d
n lugcat er ---X>n 5 i :
i s sM n~~~~ tfd unit n
$ sE- .: : : . j :~~~~~~~~NC
'-.'.
-80-
INDIA Annex 4.2
GAS FLARING REDUCTION PROJECT Faeof 8
Detailed Project Desaiption
connected to the 26 inch size, 85 km long Heera-Uraa gas trunik pipeline. Its size
has not yet been deter-
mined, but will be between 26 and 30 inches for a gas flow capacitv of about 9.5
MMCMD. It will be
connected to the SHG process complex by a 22 inch size, 11 km long line. It will
supply gas to the Uran
terminal for the Bombay area market. Its construction will complete the South Loop
for which the first
section, Heera-Uran, was completed in July 1990 under a separate Bank financed
project (Western Gas
Development Project, Loan 2904-IN). The new line will carry about 3.5 MMCMD from
Bombay High
South to Uran as soon as its extension is complete. Its design will also optimize
contingency response
capabilities of ONGC should the 15 year old Bombay High-Uran trunk gas pipeline
become idle for
service and repair. The risks of disruption of the existing pipeline system have
been assessed under a
project previously called the Western Offshore Integrated Development Prosect
(WOIDP). The WOIDP, as
originally designed. has been abandoned. However, several of its key components
have been integrated
into the new developmnent program.
13. BPB - HAaiA PIWPLINE. The second trunk gas pipeline, BPB-Hazira, will
stretch some 255 km
from South Bassein gas field (about 65 km west of Bombay in the Arabian Sea) to a
landfall point near
Umrat (about 235 km northeast of South Bassein and 240 km north of Bombay in the
southern part of the
State of Gujarat) and then to the Hazira gas terminal (about 20 km north of Umrat).
It will be built along
the existing South Bassein - Hazira gas pipeline. Its size has not yet been
determined but will be between
36 and 42 inches for a gas flow capacity of about 20 to 25 MMCMD. It will connect
with the SHG-BPB gas
line and transport about I MMCMD of associated gas from the Bombay High oilfield
and 5 MMCMD of
sour gas from the South Bassein field and nearby fields such as Panna to the Hazira
gas terminal.
14. The size selection for both pipelines, ICP-Heera and South Bassein-
Hazira, will determine
whether the gas to be transported should be "wet" or "dry." A wet gas contains some
hydromarbon
liquids (condensate), which will undergo some degree of condensation during
transport depending on the
composition of the gas, transient temperature and pressure conditionrs in the
pipeline. For the same
volume, a wet gas requires a slightly larger pipeline size than a dry gas from
which most of the conden-
sate have been removed. In the present case, condensate removal will require
complex treatment with
additional offshore platform space and facilities such as refrigeration units,
condensate handling and
other equipment, which could, as in the case of existing gas pipelines, offset the
incremental cost of larger
pipeline sizes. ONGC will consider the least cost option on the basis of an ongoing
engineering study. All
interconnecting and trunk submarine pipeline routes will be in well known areas.
Most of the pipelaying
corridors have been surveyed under pievious construction activities and do not
present any implementa-
tion difficulties.
15. EXPANSION OF HAnRA GAS TERMINAL. In order to be utilized efficiently and
sdfely, natural gas
delivered to consumers must meet certain requirements and specifications. Untreated
or unprocessed
natural gas contains many hydrocarbon compounds and a few non-hydrocarbon
compounds. Some of
them are of considerable value (LPGs and NGLs), while others are contaminants that
render the gas
un1suitable for most commercial uses (water, hydrogen sulfide and carbon dioxide).
In the case of Bombay
High gas, the water content is controlled through dehydration carried out on the
field's process platforms.
The removal of certain hydrocarbon components to meet hydrocarbon dewpoint
specifications is carried
out at the Hazira terminal. The Hazira terminal is also designed to remove carbon
dioxide and hydrogen
sulfide, which are found in high concentration in South Bassein and Panna gas
fields. The hydrogen
sulfide is a poisonous gas that could be a serious hazard to the environment if it
is not treated properly.
-81 -
INDIA Annex 4.2
GAS FLARING REDUCTION PROJECT TNaeR of 6
Detailed Project Desaiption
16. The Hazira Gas Terminal has been built in phases. The first one for a
capacity of 10
MMCMD of gas from South Bassein field was financed by the Bank under a loan that
closed on December
31,1988 (South Bassein Gas Development Project - Loan 2241-IN). It was completed
and commissioned in
July 1988. The second phase, to increase the terminal's capacity by another 10
MMCMD of gas also from
South Bassein, is almost complete. This second phase is also financed by an ongoing
Bank project (West-
em Gas Development Project, Loan 2904-IN). Presently, the terminal is processing
about 15 MMCMD
(five from Bombay High and the remaining from South Bassein). Sour gas from South
Bassein is pro-
cessed to remove hydrogen sulfide, which is converted into sulfur. The sweet gas is
dehydrated and then
its heavier hydrocarbon components removed. Gas liquids are fractionated to extract
LPGs and NGLs.
The lean gas is piped to consumers along the Hazira-Bijaipur-Jaghdishpur (HBJ)
pipeline.
17. The proposed third phase expansion of the Hazira Gas Terninal will
increase its processing
capacity from 20 to 41 MMCMD. The new facilities to be designed for a 21 MMCMD
capacity will be
similar to the existing ones. They will consist of two slug catcher units (one for
sweet gas and the other
one for sour gas), one gas sweetening train, one sulfur recovery train, one gas
dehydration unit, four dew
point depression trains and four condensate fractionation trains. The size of the
sweetening, sulfur
recovery and dehydration units will have a processing capacity of five MMCMD of
sour gas, which will
come from the South Bassein and Panna fields. The liquid hydrocarbon recovery from
the proposed
expansion will be 192,000 tons per year of LPG and 360,000 tons per year of NGLs.
Additional plant
utilities and offsite facilities, such as power generation, cooling water, product
storage and product
loading terninal will also be required.
18. E.VI\ONoMhN-rAl. COMPONFNTr. Following the appraisal mission's review
of environmental and
safety issues emerging from ONGC's offshore operations, ONGC requested financing
for
(a) a safety assessment of its offshore operations and the proposed oil and gas
terminal at Usar;
(b) staff training in safety and environmental engineering;
(c) strengthening of the current arrangements for rescue of persons at sea;
(d) an expansion of ONGC's current capacity to combat oil spills;
(e) enhancing ONGC's capdbility to monitor the impact of its operations on
environmentally
sensitive areas, in particular the marine ecosystem;
(f) the implementation of an environmental monitoring program of all of ONGC's
operations;
and
(g) strengthening ONGC's capability to deal with the risk of fires through the
desigrn of efticient
flare systems and risk assessment studies.
19. RESERVOIR MANAGEMSENT COMPONENT. The rapid increase of gas flaring is,
to a large extent, due
to the delay in water injection and other measures that proper reservoir management
practices would
require. ONGC requested financial support for a study of the Bombay High reservoir,
which should
recommnend a number of steps to optimize hydrocarbon production and arrest the
decline of oil output
from this field. This component will provide financial support for equipment,
materials and services
needed for the workover and rehabilitation of designated oilwells.
a a
a a 1~~~~~~~~~~~~~~~1
L L2 ia ; C
A, .~~~
~~~~~~~~~~~~~~~~~~~~..~.....
. .. .. . .. .
.-...., . ,.- ~ ~ ... .. .. .
.O'Q
- 83 -
INDIA Annex 4.4
GAS FLARING REDUCTION PROJECT Page I of
Project Implementation Schedule
VFY 90/9flj FY 91 /92 FY 92/93 FY 93/94 |FY94/95
199 1991 199 199 1994 199
NQP Process Patform .
Complex
S_ Comp ors Q h . e . m - - - -
SHC Process Platform
Complex
South Zone Linepipe
South Zone Lin pipe
,H._S - I-
Well Rlwdlines & Mlatform W
00
Modifications (North and
South BombyHg)jI---
ICP-Heera Linepipe6 - -
ICP- Heera Lifneipt?aa' i

Coating and Wap -

BPB-Hazira Linepipe
BPB-iHazira Linepipe Coat, I
VA4ap and Conauci n
Hazira Terminal Expansion
Ky to symbols I ssue of IFB 4 Award of conbad
4 Bid submission sense"l PNe-Constrdon Activities
O Review of bid evaluation a Cnstruction Activites
- 84 -
INDIA Annex 4.4
GAS FLARING REDUCTION PROJECT Page 2 of 3
Project Implementation Schedule
Inr'tat ion for Opening of Review Award of Compt ion of
Major procurement packages Bids to be Price Bids of Bid
Contract Contract
Issued Ewavutiom
Process platform, NQP Jun-01-91 Jan-01-92 Jan-17-92
Mar-29-92 Apr-30-94
Compressors, SI IG Jun-01-90 Jul-10-91 Jul-24-91
Oct-01-91 Aug-30-93
Process platform, Si IG May-01-91 Nov-30-91 Dec-15-91
Feb-01-92 Mar-30-94
Linepipe, SiCH BPB Apr-25-91 Aug-30-91 Sep-15-91
Nov-11-91 Oat-01-92
Laying, coating and wrapping. Si IG-BPB Mar-29-91 Sep-20-91 Oct-0691
Nov-20-91 Apr-20-93
Platform modifications Dec-01-91 Jun-08-92 Jwi-23-92
Sep-01-92 Feb-28-94
Linepipe, ICP-Hleera Nov-15-91 May-19-92 Jun-04-92
Aug-22-92 Apr-30-93
Laying, coating and wrapping, lCP'l ieera Feb-10-92 Aug-25-92 Sep-10-92
Nov-25-92 Mar-31-94
Linepipe, BPB-1Hlazira Sep-01-91 Mar-12-92 Apr-18-92
May-30-92 Jw-31-93
Laying, coating and wrapping, BPB-I lazira Jun-01-92 Nov-10-92 Dec-17-92
Feb-28-93 Dec-31-94
Expansion of } lazira gas terminal Aug-01-91 May-01-92 Jun-01-92
Aug-01 -92 Jan-30-95
Source: ONGC
Limited International Competitive Bidding (LICB)
1. LICB is a procedure which will be followed by ONGC in procuring of
certain project
componienits, e.g. linepipe, the process platform SHG and other items, which the
Bank will not finance and
for which export and suppliers credits would be required. This procedure is neither
new nor uncommon;
it is more often used in relatively more developed countries. Bids under this
procedure are often referred
to as "price & terms" bids. However, LICB has not yet been used i;] conjunction
with Bank-supported
projects in Inidia. Essentially, LICB is a resource mobilization technique used in
cases where there are
indications of strong supplier interest and where the prospective borrower finds it
convenient to leave the
resource mobilization responsibility with the suppliers. It is a practical way to
mobilize resources in
situations where the actual source of supply would become known only after the
bid(ding and where, at
the same titne, the borrower has reasonable evidence that the major part of
prospective suppliers would
be in a position to provide the requisite financing from, or with the guarantee of,
the official sources, such
as Export Credit Agencies (ECAs). The Bank will not firance any portion of the
LICBs.
2. T here are two main features of LICB which distinguish it from
international competitive
bidding, as generally defined by the procurement guidelines of multilateral
development institutions:
(i) Under LICB, the bidders are required (as opposed to being given an option),
in
addition to quoting the price, to offer financing at certain mninimum terms and
conditions, specified beforehand; and
(ii) The responsive bids under LICB are evaluated on the basis of the quoted
price and
the offered terrns of financing. Customarily, this process entails the evaluation
of bids
on the basis of their present value, calculated by applying a pre-announced
discount
factor(s).
3. The main advantage of LICB for the borrower is (external) resource
mobilization under
competitive conditions, whereby the risk of price distortions in minimized. A
possible disadvantage of
LICB is the risk of elimination of otherwise competitive bidders who cannot furnish
the requisite financ-
ing. It is therefore necessary to use LICB judiciously. In the case of the proposed
project, two aspects of
* 85 -
INDIA Annic . 4.4
GAS FLARING REDUCTION PROJECT age 3 of3
Project Implementation Schedule
LICB underwent particular scrutiny by ONGC as well as by the World Bank: (i)
supplier interest in the
procurement of project items -eferred to in para. : above; and (ii) availability of
credit to ONGC from the
prospective supplier countries. Extensive screening of the prospective suppliers as
well as of those ECAs,
which are considered to be the most likely source of credit under the subject LICB
confirmed the existence
of keen interest in the project among suppliers, and the availability of sufficient
amounts of export credit,
or export credit insurance cover.
4. As regards suppliers' interest in bidding for the delivery of project
items envisaged for
procurement under LICB, evidence was obtained through the tenders issued by ONGC in
1990 for the
supply of line pipe and equipment for the SHG Complex and for the ICP-Heera
Pipeline, on which
occasion about half a dozen suppliers from Western Europe, North America and Japan
submitted their
bids. Most of those bidders also indicated that they would be in a position to
furnish credit. Subsequently,
the World Bank also contacted a number of ECAs from the countries where the items
envisaged for LICB
were likely to originate. In all cases, indications were received of ONGC's
eligibility for export credit. On
that basis, the procurement under LICB in an estimated amount of about U&M957
million was deemed
feasible.
5. One of the key issues that a prospective LICB user has to resolve
relates to the minimum
terms and conditions of financing which the (responsive) bidders would be required
tc furnish. Under the
circumstances, given the length of the period required to depreciate the LICB-
procured items and the type
of financing that appeared available for the purpose, ONGC decided to define the
minimurmi acceptable
tenns of financing under LICB as the most favorable terms and conditions available
to India under the
OECD Export Credit Arrangement (the so-called "OECD Consensus"). For projects of a
long-term nature,
the Consensus terms would imply a minimum repayment period of 8.5-10 years,
commencing a certain
period, e.g. 6 months, after installation of equipment, thus effectively resulting
in Ic ans with final maturity
in excess of 10 years. T he applicable interest rate, which would be determined on
tU E basis of a matrix of
export credit rates which is revised by the Consensus members every 6 months. Fok
example, on January
15, 1991, the matrix rate for Consensus export credits to India, with mraturity
over 8.5 years and up to 10
years, was 9.2 per cent per annum. As an alternative to this rate, ONGC could
choose Commercial Intei t
Reference Rates given that the Consensus allows the borrower to seek commercial
rates for various
currencies in cases when those are lower than the Consensus matrix rate.
Customarily, the financing
under the Consensus would cover 85 % of the value of goods furnished.
6. In order to ensure the mobilization of resources under LICB, ONGC will
require all the
participating bidders to furnish evidence of the availability of the stipulated
credit at the time of bid
submission (or, alternatively, at prequalification, in the event that it should be
used as a part of the bid-
ding process). Such evidence should be in the form of expressions of interest from
ECAs or other financial
institutions, indicating that the stipulated credit would be available at requisite
terms and condiitions or
better, in the event that the given bidder is actually awarded the contract.
7. As indicated above, such bids would be evaluated on the basis of their
present value, which
would be arrived at by applying a predetermnined discount factor(s).
- 86 -
INDIA Annex 45
GAS FLARING REDUCTION PROJECT Page 1 of 3
Environmental Aspects
1. The project is expected to have a major positive environmental impact.
The recovery of a
substantial quantity of natural gas that is currently being flared will
substantially improve the environ-
ment. In addition, the recovery of flared gas along with the incremental gas to be
produced under the
project would displace a substantial quantity of fuel oil being used in various
small and medium indus-
tries in the Bombay areas where industrial and population concentration is already
confronting pollution
problems. Similarly, the power generation program to be supplied with natural gas
along the HBJ pipe-
line under the project would also displace coal. This would improve air quality by
reducing air pollutants
caused by the use of coal such as ash, sulfur dioxide, carbon monoxide, nitrogen
oxide and carbon diox-
ide.
2. While the use of natural gas compared to that of other fossil fuels is
highly beneficial to the
environment, its development and production entail some environmental and safety
hazards. To cope
with these hazards, the industry has developed a series of guidelines, which are
compiled and updated by
international agencies (Anetrican Petroleum Institute, American Bureau of Shippin&
Uoyds Shipping
Register, and Det Norike Veritas). In most countries, thesc guidelines are adjusted
to the country's specific
situation and enforced through national legislation or other regulations. In this
regard, ONGC has
adopted a Recomrnended Code of Practice and applies the Indian Environment
Protection Act of 1986 for
its oil and gas operations. All projects are subject to a Govemnment environmental
clearance (Ministry of
Environment and Forests) which requires a satisfactory environmental impact
assessment with environ-
mental management plans and disaster management plans.
3. ONGC's safety and environmental guidelines and regulat.ons as well as
ONGC observance
were evaluated by Bank consultant and staff and found satisfactory. The Bank
consultant has also carried
out a comprehensive review of the safety and environmental issues associated with
the proposed project.
It was found that the occupational safety of field personnel has substantially
improved over the past 12
months; while no major environmental issues have emerged fhom the review, there is,
however, a poten-
tially adverse impact inherent in the project's implementation activities
particularly with regard to devel-
opment drilling, construction of the process platforms, construction of the gas
pipelines and expansion of
Hazira terminal.
4. FATAL AcaDENr RAm1 The number of fatal accidents related to the Bombay
offshore activi-
ties has oeen relatively high over the past five years (1985:1; 1986:2; 1987:1;
1988:3 of which 1 onshore and
1 for ONGC's contractors; 1989: 5 of which 3 for ONGC's contractors; and 1990:0).
Of the 12 fatal accidents
three were man over-board accidents and three were related to drilling activities
including a well blow-
out during drilling. In view of the steep increase of fatalities in 1988-89, ONGC
adopted several measures
to enhance the level of safety awareness and emergency preparedness. One of the
measures is a risk
analysis and safety audit of production platforms. Engineers India Ltd. with the
back up of an external
consulting firm have been carrying out this work since July 1989. These measures
were discussed with
Bank staff, which found them satisfactory. The fact that there were no fatalities
in 1990 seems to point to
the effectiveness of the steps taken by ONGC.
5. DEv ELrr DRILLING. While development drilling is not a project
component, several wells
will be drilled within the project area to increase oil and gas production. The
potential risk to the environ-
ment of offshore drilling is largely due to the increase of drilling waste and the
effects of well blow outs.
Drilling waste consists mainly of drilling fluids (drilling and chemicals),
residual substances and drill
- 87 -
INDIA A 4ir
GAS FLARING REDUCTION PROJECT Pagr 2 i,f 3
Environmental Aspects
cuttings (various rocks recovered while drilling the wells). ONGC does not use oil
based drilli;g ritid.ls
which are a major source of 2ollution. It uses water based drilling fluids which
are continuously condi-
tioned (using solid control equipment and adequate treatment) and recovered at the
end of each cycle.
Drill cuttings are washed and discharged into surface waters. Well blow outs with
oil and gas 'iischarge
while drilling represent another major danger to the environment. To minimize this
dagr.er, L)NC,( use's
drilling rigs with field proven mechanical integrity and blow out preventers with
rermote control systems
Drilling equipment is operated by experienced crews often provided by international
contractors.
6. In the unlikely event of a blow-out with oil discharge, the oil spill
would not exceed 4(X)
tons of oil per day. This estimate is based on the production average of the wells
in the area. For this
purpose, ONGC has five multi-purpose vessels of which two are equipped with booms
and oil skimmers
with an oil spill recovery capacity equivalent to a well blow-out discharge.
Additional facilities are
available with the Indian Coastguard for a recovery capacity of about 300 tons per
day. It should be noted
that for larger oil spills, ONGC can avail the services of established worldwide
oil spill control centers
7. CONSTRUCnON OF nfE PROCESS :I`.ATFORMS. Construction and installation
of process platfornl;
entail no environmental risks, except very limited disturbances of the sea floor
during location sampliln.
and platform siting. As the main functions of the platform are oil, gas and water
separation, gas cornlpft1
sion and water treatment the Lnvironmental risks may occur after the platforms are
put into productiot,
from effluents generated from produced water or leaks of oil and gas. For this
purpose the platfonrms will
be equipped with adequate water treatment facilities particularly for removal -f
any oil or grease. Moni-
tors to activate warning signals wotuld be installed wherever there is a risk of
leaks. Accidental oil and gois
spills will be minimized through appropriate operating and maintenance practices
that were fotiund to tho
adequate.
8. RE4EDIAL MEASURES FR EXSTINNG PlAIFORMS. A review of the environmental
and safety
related equipment and practices on the existing platforms of the Bombay High fields
will be carried out ,is
part of the proposed project. In addition to the safety audit being carried out,
the modifications planinied
tor the existing platforms will take into account the latest environmental and
safety regulations In this
regard, the high pressure gas riser of NQO platf'orm, located beneath the iiving
quarters would be relo
cated on platforms with no living quarters such as NQP or NQG. This approach will
be followed in the
future in simnilar situations.
9. CONSTRUCION OF THE GAS PIPEUNTES. Construction of offshore pipeline
also does not cntail anv
significant environmental risks except very limited disturbances of the sea floor.
The linepipe would be
taken to sea on barges and welded on a derrick-lay large and then allowed to sink
and rest on the sea floor
within 60 to 70 m water depth. All pipelines planned under the project would be
along a previously
surveyed route that is flat, avoiding boulders and any other obstructions that
require blasting. To mini-
mize or eliminate shifting on the sea floor, the pipe would weighted with a heavy
concrete outer coating.
To trinimize the risk of environmental pollubon after the pipeline is put into
service, all materials usedi for
construction would be carefully inspected. The welding would be inspected by X-ray
techniques and
hydrostatic tests. The risk of corrosion would be minimized by using adequate
cathodic protection
methods. The pipeline would be equipped with automatic shut-off valve devices and
metering systems to
give continuous comparison between input and output on all lines. This allows
operators to discover
leaks immediately.
- 88 -
IND;A Annex 45
GAS FLARING REDUCTION PROJECTI age3
Environmental Aspects
10. EXIPANSION OF tHE HAZJIA GAS TERMINAL. The construction of additional
facilities at Ha_ira
entails no environmental risks. Some disturbances would, however, be generated from
dust during the
site preparation and noise during the construction. Since the terminal is located
in an uninhabited area,
these disturbances wouldi have very limited environmantal implications. When the
additional facilities
are put into service, there would be, however, an increase in the environmental
risks since similar facilities
are already operational within the terminal. These risks relate mainly to gaseous
and liquid effluents.
Gaseous effluents could originate principally from the gas process itself, valves,
compressors, storage and
loading facilities. The design of the terminal would be such that these effluer.ts
would be collected by
vapor recovery, ventilating systems. The fact that the additional facilities would
process 5 MMCMD of
sour gas to be constructed at Hazira with gas desulfurization and sulfur recovery
equipment would
significantly reduce the amount of sulfur that would otherwise be released into the
atmosphere. With
regard to liquid effluents, three types of pro zess treatment would be provided,
namely for rain water,
sanitary waste and process waste. Rain water would be collected in surge ponds and
treated to remove
any oil and suspended solids. It will then be filtered and used in cooling systems
or disposed of. The
sanitary waste would be treated in specially designed units. Process waste would be
collected in tanks
and treated for removal of any oil and suspended solids. A-r flotation units would
be used for removal of
emulsified oil. Recycling systems inci.u ;ng biological treatment would also be
installed In addition,
good maintenance and inspection practices would be an effective approach to keep
the terminal as
leakproof as possible
INDIA
GAS FLARING REDUCTION PROJECT
Detailed Project Cost
usS miallw
Fii Qr y mdi Mwrc 31 FY92 FY93 FY94
FY95 FY96 ToWl
njrd cog itm Fuur Lem Towt Fwapg Lalw Totd Fcmx Lowt Tot Fp
LOWt Totwl Fmgu Lt Tow Famp Lat cut
Prcm platform, NQP 8.4 2.0 10.4 627 15.0 77.7 104.5 25.1 1296 33.4
8.0 41.5 0.0 0.0 0.0 209.0 50.2 259.2
Cnp_ soHs. SG 6.3 1.5 7.8 100.0 24.0 124.0 18.8 4.5 23.3 0.0
0.0 0.0 0.0 0.0 0.0 125.0 30.0 155.0
Proe plform, SHG 4.6 1.1 5.7 69.0 16.6 85.6 103.5 24.8 128.3 52.9
12.7 65.6 0.0 0.0 0.0 2300 55.2 2852
Lineppe, SG-BBB 8.7 26 11.3 49.3 14.8 64.1 0.0 0.0 0.0 0.0
0-0 0.0 0.0 0.0 0.0 58.0 17.4 75.4
Layin cating wid wnppg,
SHG-BPB 0.3 0.1 0.4 13.0 5.0 18.1 2.4 0.9 3.3 0.0
0.0 0.0 0.0 0.0 0.0 15.7 6.1 21.8
Plaform nbdificans 1.3 0.3 1.6 25.3 6.1 31.4 28.5 6.8 35.3 8.2
2.0 10.2 0.0 0.0 0.0 63.3 15.2 78.5
Linpipe, ICP-Heema 10.5 32 13.7 59.5 17.9 77.4 0.0 0.0 0.0 0.0
0-0 0.0 0.0 0.0 0.0 70.0 21.0 91.0
IAyf atng and wrapping
ICP-Hewa 1 9 0.5 2.4 43.7 10.5 54.1 51.4 12.3 63.7 0.0
0.0 0.0 0.0 0.0 0.0 97.0 23.3 120.3
linepipe,W P azia 0.0 0.0 0.0 22 0.7 2.9 99.0 29.7 128.7 118.8
35.6 154.4 0.0 0.0 0.0 220.0 660 286.0
laying,uidng and wrapping ,
UBHazkra 0.0 0.0 0.0 6.5 1.6 8.0 58.2 14.0 72.1 58.2
14.0 72.1 6.5 1.6 8.0 1293 31.0 160.3
Expanon Hazira gs termnal 0.0 0.0 0.0 68.8 54.5 123.3 82.6 65.3 147.9 82.6
65.3 147.9 413 32.7 74.0 275.3 217.8 493.1
Raesroi managemnyt,
savis and equpment 35.0 31.5 66,5 32.4 30.1 62.5 0.0 0.0 0.0 0.0
0.0 0.0 0.0 0.0 0.0 67.4 61.6 129.0
EngIneei ad
proat _ t 1.7 5.0 6.6 2.2 6.5 8.7 2.6 7.9 10.5 0.7 2.0
2.7 0.4 1.1 15 7.5 22.5 30.O
Shxluinandtraing 0.0 0.0 0.0 1.0 03 1.3 1.0 03 13 0.0 0.0
0.0 0.0 0.0 0.0 2.0 0.6 2.6
ElnvIrommeti component 4.9 33 82 4.9 33 82 4.9 33 82 0.0 0.0
0.0 0.0 0.0 0.0 14.7 9.8 24.5
ne cot (199 prices) 83.5 51.0 134.5 540.5 206.7 7472 557.3 195.0 7523 354.8
139.7 494.5 4&1 35.3 83.5 1,564.2 627.7 2211.9
Physcal ontnengdes 83 5.1 13.4 54.0 207 74.7 55.7 19.5 75.2 35.5
14.0 49.4 4.8 3.5 83 158.4 62.8 '212
Prkxontingindes 6.4 8.7 15.0 62.7 5Z2 114.9 87.7 66.4 154.1 71.0
60.0 131.0 11.8 18.5 30.3 239.5 205.8 4453
Total prect coot 962 64.8 163.0 657.2 279.6 936A8 700.7 280.J 981.6 461.3
213.7 675.0 64.7 57.4 122.1 1,962.1 8963 2,87.4
Taxes and asoms duties 12.4 125.8 1363
89.6 102 374.4
Noee Total bne wot incdudes twoes and cusaous dute
Vfii
-90-
INDIA Anniex 4.7
GAS FLARING REDUCTION PROJECr PI1rg
Project Financing Plan
1. The following table shows the financing plan for the proposed
project:
Proposed Financing Plan
us$ "dalo
PrOJ1 ComCants Foin LoW Totl World ap ADB Export
ONGC ONGC
Cost Cost Cost 1ank Untied Credits Forgn Lal
Process platfor. VQP 261.0 713 3323 261.0
713
Compre-sors, SHC 152.5 40.9 193.4
129.6 22.9 40.9
Process platform, SHG 288.2 79.0 367.2
245.0 43.2 79.0
Linepipe, SHG-BPB 70.2 23.3 93.5
59.7 10.5 23.3
Laying, coating and wrapping, SHG-BPB 19.2 8.3 27.5 19.2
8.3
Platform modifications 78.8 21.5 1003 78.8
21.5
Linepipe, ICP-Heera 84.7 28.1 112.8
72o 12.7 28.1
LAying, coating and wrapping, ICP-Heera 120.0 32.5 152.5 120.0
32.5
U.nepipe, BPB-Hazira 281.6 98.2 379.8
239.4 42.2 98.2
Laying, coating and wrapping, BPB-Hazira 165.4 461 211.5 165.4
35.4 46.1
Expansion Hazira gas terminal 350.4 320.8 6712 350.0
0.4 320.8
Reservoir management, services and equipment 80.6 80.7 161.3 79.3
1.3 80Q7
Engineering and project management 9.2 31.4 40.6 9.2
31.4
Studies and training 2.5 0.8 33 2.5
0.8
Environment and safety 17.9 13.3 31.2 14.6
3.3 13.3
Total 1962.1 896.3 2878.4 450.0 350.0
300.0 745.6 136.5 8963
Interest during construction 204.1 101.8 305.9
204.1 101.8
Total 2186.2 998.1 3,184.3 40.0 350.0
300.0 745.6 340.6 996.1
Note: Export credit assumed as PS% of foraign exchange cost with balance from ONGC
2. The financing plan was developed in consultation with the Government
and ONGC, taking
into account external resource availability constraints outlined in para. 3.25.
Given the large foreign
exchange requirements - US$2.2 billion - and the fact that a more extensive use by
ONGC of private source
borrowings did not appear feasible at this time, it was agreed that a combination
of cofinancing sources
would be required to make this financing plan viable.
3. ExroRr CREDrr. The effort was first made to maximize the use of
official export credits, - a
source so far least used by ONGC - comprising direct export credit extended from
export credit agencies
(ECAs) to ONGC, buyer credit offered by ECAs to ONGC, and/or credit to ONGC offered
by suppliers
with the backing of their respective ECAs (and, possibly, with somne participation
from the commnercial
banks supporting the suppliers). Following a request by ONGC for assistance in
mobilizing the cofinanc-
ing, the Bank contacted a number of ECAs to ascertain the availability of credit
and/or export credit
insurance to India. These contacts confirmed that an adequate volume of export
credit would be available
to finance suitable procurement packages, e.g. linepipe. Based on inquiries made by
ONGC, in some cases
also by the Bank, it was also established that most potential linepipe suppliers
would be willing to provide
credit. 3ome suppliers indicated that they were prepared to arrange the financing
of larger procurement
packages, such as platforms. ONGC decided that it would seek suppliers' and export
credits for items
such as linepipe, compressors and the process platform SHG.
- 91 -
INDIA Annex 4.7
GAS FLARING REDUCTION PROJECT Fage2
Project Financing Plan
4. In order to ensure that the envisaged USS 745.& million in parallel
cofinancing would be
forthcoming, ONGC intends to limit the bidding for the kind of packages ihdicated
above to bidders
offering financing at most favorable terms and conditions applicable to India under
the OECD Arrange-
nent on Officially Supported Export Credits ('the Consensus"), or better. The
export credits extended to
ONGC under the Consensus could have repayment terrns of up to 10 years and fixed
interest rates. All
responsive bids would be evaluated with prices and terms taken into account. (For
evaluation procedure,
see Annex 4.4). The Bank will continue to assist ONGC in mobilizing cofinarcing
from these sources.
3. THE Ex -lm[2T BANK OF JAPAN (1-EXIM). In order to secure additional
cofirancing, the
Government applied in March 1991 for an untied facility from J-EXIM in the amount
of US$350 million
equivalent. J-EXIM is currently studying this application. If accepted, the untied
J-EXIM loan would
provide parallel cofinancing for the expansion of the Hazira gas terminal.
Procurement would be carried
out under World Bank procurernent euidelines.
6. THE ASIAN DEvELoPmFNr BANK (ADB). The envisaged cofinancing from ADB
would finance
the procurement of the laying, coating and wrapping of the ICP-Heera and UPB-Hazira
pipelines. ADB
would also finance the environmental component included in the project. Bank staff
participated in ADB's
preparatory work for the participation in the proposed project, which has been
included in ADB', FY92
lending program for India. ADB has informed the Bank that they expect Board
approval for their partici-
pation in the proposed project in the first quarter of 1992.
7. THE WoRLD BANK. The prcposed Bank loan has been allocated to several
procurement
packages. Some of those are crucial and among the most complex components of the
project, such as the
process platform NQP the component dealing with reservoir management. Others, such
as 'pltform
modifications', are not suitable for export credit and, in isolation, of little
interest to other cofinanciers.
Finally, components like Engineering and Project Management, and Studies and
Training are considered
important for the Bank to be able to adequately play its supervising role and to
provide techtical assis-
tance.
8. The total amount of US$ 340.6 million in foreign exchange resources
(including US$204
million in interest during construction), which ONGC is expected to provide is
sizeable. However,
considering that this residual amount would be required over a longer period and
that additional cofi-
nancing sources are still being explored, it is viewed as manageable by ONGC.
- 92 -
INDIA Annex 4.8
GAS FLARING REDUCTION PROJECT FagIeTofTT
Estimated Schedule of DLsbursemcnb
US$ million
IBRD Amount Cmulhti7e
Pertnagc
Fikl Yar Quarter rwi AmountofLam
1992 1 34.9 34.9
7.8
11 46.9 81.8 18.2
111 14.4 96Y2 21.4
IV 14.9 111.1 24.7
1993 1 26.5 137.6
30.6
11 31.5 169.1 37.6
111 36.4 205.5 45.7
IV 45.0 250.5 55.7
1994 1 36.6 287.1
63.8
11 41.6 328.7 73.0
III 29.6 358.3 79.6
IV 27.2 385.5 85.7
1995 1 20.0 405.5
90.1
11 16.0 421.5 93.7
III 13.0 434.5 96.6
IV 12.0 446.5 99.2
1996 1 3.5 450.0
100.0
Cumulative and Quarterly Disbursements
US$ million
Quarterly disbursement Cumulative
disbusement
50
SW
40 uve
400
11 | | |/ ~~~disburuent/
30 B l
dad 300
20
20D
10
100
PY91 FY92 PY93 FY94 FY95 FY96 FY97 FY98
IBRD fisa year
*93 -
INDIA Annex 5.1
GAS FLARING REDUCTION PROJECT a-ge I fl
Assumptions Underlying the Project Financial Analysis
Capital Costs The capital costs are based on ONGCs and the
mission's esti-
mates of the cost of the various project components For the
purpose of calculating the financial rate of return of the project
these costs have been converted into their equivalent in 1991 US
Dollars. They include physical contingencies of 10% of the base
cost of the project components, taxes and duties estimated to
average 26% of the cost of items to be imported under the project.
The cost of upgrading of the HBJ pipeline to accommodate the
increased availability of gas has not been included.
Operating Costs The operating costs are based on ONGCs
experience with the
operation of sirnilar installations. The annual expenditures have
been calculated as follows:
* Repairs and Maintenance:
(i) 1% of the capital cost of the pipelines
(ii) 3% of the cost of all other capital iterms
* Insurance:
0.2% of capital cost, excluding the costs of wells and
pipelines
Incremental Personnel Cost
Rs 6250 per staff/month for 20 staff
* Overhead
US$ 2 million
Average operating costs amount to about 2% of capital cost.
Gas Price The currently prevailing price for gas is Rs
1400 per 1000 m3 (at
land fall points) and Rs 2250 per 1000 nis (along the HBJ pipeline).
These prices will be revised, as soon as the Govemment decides
to adopt the gas pricing policy proposed by the Bureau of Indus-
trial Cost and Prices. A decision to implement this pricing policy
is a condition of the nroposed loan. Implementation of this
policy would raise &Ls prices to Rs 1500 per 1000 m' to gas
producers, i.e. ONGC and OIL. The financial assessment of the
project is based on Rs 1500 per 1000 m'.
-94 -
INDIA Annex 52
GAS FLARING REDUCTION PROJECT Page 1 of 1
Project Financial Analysis
Capiw Opering Inaremente Irem ntMl Prim TotI Net cst
Year endrng Marct 31 Costs Experse Vdume Cas VouwCe Gas US$M pe
n&fits BemIs
US$ milli& USS miniort MMCMD MMCM 1000 Ms US$ miuilt USS mOim
1991 85.7 0.0
0.0
1992 55.3 85.7 0.0
(55.3)
1993 676.8 85.7 0.0
(676.8)
1994 b91.1 28.5 3.6 1.242 85.7 106.4
(613.1)
1995 470.3 37.9 3.3 1,139 85.7 97.5
(410.7)
1996 91.8 39.7 24.6 8,487 85.7 727.0
595.5
1997 39.7 22.4 7,728 85.7 662.0
622.3
1998 39.7 19.1 6,590 85.7 564.5
524.8
1999 39.7 17.4 6,003 85.7 514.2
474.5
2000 39.; 15.3 5,279 85.7 4522
412.5
2001 39.7 13.3 4589 85.7 393.1
353.4
2002 39.7 10.9 3,761 85.7 322.1
282.4
2003 39.7 9.1 3,140 85.7 268.9
2292
2004 39.7 7.7 2,657 85.7 227.6
187.9
2005 39.7 6.4 2,208 85.7 189.1
149.4
2006 39.7 5.9 2,036 85.7 174.4
134.7
2007 39.7 5.8 2,001 85.7 171.4
131.7
2008 39.7 5.7 1,967 85.7 168.5
128.8
2009 39.7 5.7 1,967 85.7 168.5
128.8
2010 39.7 5.9 2,036 85.7 174.4
134.7
Total 1,985.3 62,825
Results:
Internal rate of return (FIRR): 17.5%
NPV at 10% 517.7
NPV at 12% 369.3
NPV at 20% (103.8)
NPV at 25% (245.8)
Note: Capital cost excludes the upgrading of the HBJ go pipeline, but indudes
additonal investmnents required to expand the
capacity of the South Bassein ps field
Incremental volume in MMCM is based on an average offtake of 345 days
-95 -
INDIA Annex 5.3
GAS FLARING REDUCTION PROJECT Page 1 of 3
Assumptions Underlying the Project Economic Analysis
Background
1. The aim ot the economic analysis is to judge whether there are
enough benefits to justify the
commitment of resources for the investments to eliminate the flaring of gas in the
Bombay High oilfield.
As described in Annex 4.2, the proposed project is part of a larger investment
program (LI!-LIII project)
aimed at increasing oil output from the Bombay High oilfield. To recover the gas
that is currently flared
as well as the additional gas that will become available as a result of the
increase of oil output from the
LII-LIII project, ONGC needs to expand the capacity of the infrastructure for the
recovery, transport and
processing gas in the Westem offshore region. Without these investments gas flaring
would increase
dramatically.
Table I Assumptions for the Economic Analysis
Year ending March 31 Do, ic International Exchange Rates 0,i Price,
Fud 0i Natoml Gas,
Inflation Infation
Percenti Percent Rs pe US$ USS per barrel USS per ton Rs per
1000m
1990 8.8 6.3 17.5 25.4
151.1 2642
1991 8.3 3.4 19.4 23.8
142.3 2488
1992 6.6 3.4 20.8 20.3
123.1 2153
1993 6.5 3.4 21.8 18.3
112.2 1962
1994 6.5 3.4 23.0 19.1
116.6 2039
1995 6.2 3.4 24.1 19.8
120.4 2106
1996 6.2 3.4 25.1 20.6
124.8 2182
1997 6.1 3.4 25.9 21.5
129.7 2268
1998 6.0 3.4 26.6 22.5
135.2 2364
1999 6.0 3.4 27.3 23.5
140.7 2460
2000 6.0 3.4 28.0 24.4
145.6 2546
2001 6.0 3.4 28.0 24.3
145.0 2536
2002 6.0 3.4 28.0 24.0
143.4 2508
2003 6.0 3.4 28.0 23.8
142.3 2488
2004 6.0 3.4 28.0 23.5
140.7 2460
2005 6.0 3.4 28.0 23.3
139.6 2441
2006 6.0 3.4 28.0 23.3
139.6 2441
2007 6.0 3.4 28.0 23.3
139.6 2441
2008 6.0 3.4 28.0 23.3
139.6 2441
2009 6.0 3.4 28.0 23.3
139.6 2441
2010 6.0 3.4 28.0 23.3
139.6 2441
Notm. Weighted average fob pnce of petroleum exports from Ol'EC countries, 1991 US
Dollas
Fudeloil prie, cif Bombay, 1990 US DoLlars
c Conresponding inland value of natural gas replacing fuel oil 1991 Rupees per 100
ma
2. A review o; various alternatives for the recovery and transmission
of gas carried out by
Engineers India Ltd. (Annex 4.1) has established that the proposed investments
represent the least cost
means for eliminating gas flaring and transporting gas for use on shore. Hence, the
costs and benefits are
defined not with respect to the next best alternative, but in relation to 'not
doing anything at all', the
'without project situation'. ONGC does have the option to limit the LII-LIII
project t" investments neces-
sary for increasing oil output and continue the flanng of gas. The approach is to
L.rImate the incremental
-96 -
INDIA Annex 5.3
GAS FLARING REDUCTION PROJECT Fgo3
Assumptions Underlyung the Project Economic Analysis
cost and benefit streams associated with the proposed project and compute the
economic indicators of the
project, the net present value at the opportunity cost of capital for India (12%),
and the economic internal
rate of return (EIRR). The analysis period consists of th' construction time and
the operating life of the
projft. Table I summarizes the main assumptions that were used in the economic
analysis
Econormic Costs
3. The financial flows were converted to economic costs by (i) netting out
duties and other
dom 2stic transfers; tii) expressing the import content at c.i.f. prices; and (iii)
applying shiadow prices to
don.estic components. A standard conversion factor of 0.8 was applied to all
domestic costs.
4. The costs include the required investments for the recovery and
transmission of associated
gas in the Bombay High oilfield. The increase in gas supplies will require an
expansion of the current
capacity of the HBJ gas pipeline from 22 to 33.5 MMCMD. While this expansion is not
part of the project,
its costs were included in the economic analysis. Similarly, the additional gas
pipeline from South Bassein
to Hazira will be used for the transport of gas from the South Bassein gas field as
soon as associated gas
supplies from the Bombay High gas field are exhausted. The cost of expanding the
capacity of the South
Bassein gas field were included in the economic analysis of the projet.
Economic Benefits
5. Table I summarizes the assumptions that were used in the assessment of
the economnic
benefits from the project. Although components of this project contribute to the
objective of ONGC's
larger investment program (LII-LIll project) aimed at increasing oil production in
the Bombay High
oilfield, only the volumes of gas that will be recovered and brought to markets
onshore were taken into
ac, sunt in the economic analysis of the project. Similarly, the cost of the
various components that serve
both the increase in oil uutput and the recovery of gas were apportioned to their
respective outputs. The
volumes of gas and oil are shown in Table 2.
6. Natural gas has been valued on the basis of the fuel which it replaces,
delivered at the point
of use. For the purposes of the economic project evaluation, it has been
conservatively assumed that all
gas replaces fuel oil, the lowest valued replacement. International prices of fuel
oil were projected based
on the Bank's projections for crude oil prices, and adjusted for international
transport to arrive at a cif
value at Bombay. Gas used at landfall points and along the HBJ pipeline has been
valued at the thermal
equivalence of fuel oil cif Bombay.
7. The use of natural gas yields additional economic benefits in the form
of reduced storage
and handling costs, reduced maintenance costs as well as lower pollution. Further
benefits result from the
increased thermal efficiency of natural gas relative to liquid fuels and coal,
which typically result in a 5%
to 30% increase in benefits depending on the use and type of bumer. These
additional benefits are par-
ticularly large where gas replaces coal. Although the magnitude of these savings
varies from industry to
industry, their total impact can be libstantial. As a result, the project benefits
as currently measured,
using, direct thermal equivalenc . gas for fuel oil, tend to underestimate the
benefits of this project to the
Indian economy.
-97-
NDIA Annex 5.3
GAS FLARING REDUCTION PROJECT Page3of
Assumptions Underlying the Project Economic Analysis, 1991 to 2010
Table 2 Volumes of Gas and Oil Produced lInder the Project
YeandingMarch 31 Incremene gas suppliew Oia Pr Fuel Oa
Gas Priwe Incr. Oa
Hazira Uran Price 6 Suppik s'
MMCMD MMCMD USS/bbl USS/t"o Rs/l 000 m3 Mill. tons
1991 23.8 142.3 2488
1992 20.3 123.1 2153
0.6
1993 18.3 112.2 1962
C.6
1994 3.6 19.1 116.6 2039
2.3
1995 33 :9.8 120.4 2106
4.8
1996 21.2 3.4 20.6 124.8 2182
5.0
1997 19.3 3.1 21.5 129.7 2268
4.8
1998 16.3 2.8 22.5 1a5.2 2364
4.2
1999 15.0 2.4 23.5 140.7 2460
4.0
2000 12.8 2.5 24.4 145.6 2546
3.9
2001 10.5 2.8 24.3 145.0 2536
3.7
2002 7.9 3.0 24.0 143.4 2508
3.4
2003 2.9 23.8 142.3 2488
3.2
2004 . L.6 23.5 140.7 2460
2.8
2005 6.1 03 23.3 139.6 2441
2.5
2006 5.9 23.3 139.6 2441
2.4
2007 5.8 23.3 139.6 2441
2.2
2008 5.7 23.3 139.6 2441
2.0
2009 5.7 23.3 139.6 2441
1.8
2010 5.9 23.3 139.6 2441
1.7
Notes:
Weighted average f.o.b. price of petroleum exporw front OPEC countries
Fuel price, c.i.f. Bombay
tGa price at lardfl points in India at par with the value of imported fuel oil
Increase in oil output due to the Lll-LIll project
Values of Incremental Gas and Oil Production, 1991 to 2000
USS milliopt
MRS~~~~~~~~~~~~~~~~'.N
Gas Oil~N
-98-
IND.A Annex 5A
GAS FLARING REDUCTION PROJECr FBe 1 f1
Project Economic Analysis
Capi& 3pewing h,vrSMt, Ivwre,,tul Prix TOW kt wet
Costs Expewu Vod. C. Voi. C- US$ Per Baajts Benfts
Yr US$ miU,ou US$ milism MMCMD MMCM I00 3 US$
mion US$ miim
1991 128.1
0.0 0.0
1992 43.9 110.8
0.0 (43.9)
1993 613.3 101.0
0.0 (6133)
1994 686.4 269 3.6 1,242 104.9
130.3 (582.9)
1995 426.7 35.4 3.3 1,139 108.4
123.4 (336.7)
1996 75.1 369 24.6 8,487 112.3
953.1 841.2
1997 36.9 22.4 7,728 116.7
902.2 8653
1998 369 19.1 S,590 121.7
801.7 764B
1999 36.9 17.4 6,003 126.6
760.0 723.1
2000 36.9 15.3 5279 131.0
691.6 654.7
2001 36.9 13.3 4,5 130.5
599.0 562.1
2002 36.9 1Q9 3,761 129.1
485.3 448.4
2003 369 9.1 3,140 128.1
402.1 365.2
2004 36.9 7.7 2,657 126.6
3363 299.4
2005 36.9 6.4 2, 125.6
2773 240A
2006 36.9 5.9 2,036 125.6
255.7 218.8
20O7 36.9 5.8 2,001 125.6
251.3 214.4
2008 36.9 5.7 1,967 125.6
247.0 210.1
2009 36.9 5.7 1,967 125.6
247.0 210.1
2010 36.9 5.9 2,036 125.6
255.7 218.8
Total 1,845.3 62,825
Results:
Internal rate of return (EIRR): 30.3%
NPV at 12% 1,3112
NPV at 20% 462.0
NPV at 25% 183.6
NPV at 27% 103.8
NPV at 37% (98.7)
Note: Capital cost indude upgrading the HBJ 3s pitpne and addit3nal ineats required
for inacing the cap.dty of the South
Baeirn pas fied.
Incemnental volume in MMCM is baed on an average offitake of 345 days
-99 -
INDIA Amiexa61
GAS FLARING REDUCTION PROJECr Pifl
Project File
(Filed in the Asia Infomation Center)
The Energy Sector
Eighth Five-Year Plan, 1990-1995, Planning Commission, draft, November, 1990
Indian Petroleum & Natural Gas Statistics, 1988-89, Economics & Statistics
Division, Mnir of 1tro-
leum and Chemicals, Department of Petroleum & Natural Gas, Government of India, New
Dehi
The Market for Gas
Report of the Committee on Pricing of Natural Gas, Department of Petroleum and
Natural Gu New
Delhi, May 1990
Gas Use Policy, Department of Petroleum and Natural Gas, New Delhi, October 1990
Report of the Sub-group on Demand Projections and Refining Capacity, Working Group
on Petroleum for
the Eight Plan, Planning Commission, November, 1989
The Oil and Natural Gas Commission
Eighth Five-Year Plan, 1990-1995, Report of the Sub-group on Exploration,
Development and Production
of Oil and Gas (Including Gas Utilization), Planning Commission, draft, November,
1989
ONGC, Annual Report, 1989-90
Oil India Ltd. Annual Report, 1989-90
'he Project
Environnwntal and Safety !ssues in ONGC's Offshore Operations, prepared for the
World mank by S.Shaw
(Technica, London, United Kingdom), November 1990
Westem Offshore Gas Reserves, note prepared by ONGC, January 1991
Feasibility Report for the ICP - Heera and SHG - BPB Gas Pipelines, prepared by
ONGC, January 1991
-100-
INDIA Annex 62
GAS FLARING REDUCTION PROJECr Page 1 of 2
Supervision Plan
bank Supervision Inputs Into Kev Activities
1. The staff inputs shown in the table below are in addition to regular
supewvision require-
ments for the review of project implementation progress reports, procurement,
financial statenmnts and
sector issues. An average of 36 staff-weeks per year will be required.
Bank Staff Inputs for Project Supervision
Aptroximate Actjivt
Anticiated Skil Inpst hi
dates
Requnremmts staff web
3/91-10/92 Review of IFB documentation and bid evaluations
Engneermng 20
Assistance in finalizatioji of project financing pln Co-Financng
12
Review of ONGCs proiect implementation and procurement organization Procurement
8
Management/Economics 20
9/91 Supervision Mission
Review of project management arrangements Engineering
6
Review of procurement progress Procwement
6
Review of project financing arrangements Economics
4
Finalize TOR for reservoir study Financial
analysis 4
Review implementation of revised gas pricing and gas utilization policies
Rcview of unaudited financial statements for 1990-91
Review of ONGCs investment program
Review of gas marketing plans
2/92 Supervision Mission
Review of ONG('s new procurement procedure Fngineeirng
6
Review of gas projects status Procurement
f
Review of project implemenation Economics
4
Review of gas marketing plans
9/92 Supervision Mission
Review of pro)ect implementation progress Engineering
6
Review of reservoir stidy implementation progress Procurement
6
Annual review of investment program Economics
4
Review of gas marketing plans Financial
analysis 4
1993-95 Two supervision missions per year
Engineering 6
Economics 4
Financial analysis 4
1996 Project completion report (PCR) preparation
Engineering 6
Economics 4
Financial analysis 4
- 101 -
INDIA Annex 6.2
GAS FLARING REDUCTION PROJECT Page 2 of2
Supervision Plan
Borowers Contributions tc Supervision
2. ONGC and the Government of India will be requested at negotiations to
teke the following
steps in order to facilitate supervision of the proposed project:
(a) ONGC - to appoint a i'roject Coordinator to supervise the implementation of the
project;
(b) ONGC - to submit quarterly reports on the progress of project implementation.
The format
and content of the report will be agreed with ONGC during negiotiations;
(c) GOI (through a monitoring committee of the Department of Petroleum and Natural
Gas) - to
submit quarterly reports which will review the status of implementation of ONGC's
gas
projects in addition to projects which are scheduled 3o utilize gas. The formnat
and content of
the report will be agreed during negotiations;
(d) ONGC - to subm.t annual, unaudited financial statements, consisting of incomne
and fund
flow statements and balance sheet, within six months of the end of the fiscal year,
i.e. by
September 30 each year;
(e) ONGC - to submit annual, audited financial statements within nine months of
the end of the
fiscal year, i.e. by December 31 each year. These accounts would include separate
audit
reports for the project special-account and for withdrawals against statements-of-
expendi-
ture.
MAP SECTION
I
IBRD 22892
INDIA
GAS FLARING
GUJARA T
REDUCTION PROJECT
0 2
PROJECT COMPONENTS:
* PROCESS PLATFORMS
A TERMINAL EXPANSION GUJARA T
DAHEJ BoaCh
.- GAS PIPELINES
.
EXISTING COMPONENTS
* PROCESS PLATFORMS
A TERMINAL
4. OFFSHORE LOADING POINTS
SAMLA
GAS PIPELINES
FERTILIZER PLANTS
4'
* , DIeTRIBUTION LINES
Surat
PRINCIPAL FIELPS
KRI8HCO
1 POTENTIAL OIL AND/OR GAS RESERVES
HaZ
PROVEN OIL RESERVES (AND ASSOCIATED GAS) 21-
21'
PROVEN NATURAL GAS RESERVES
R
FAULT LINES C&NTRAl
TAPT /
ISOBATHS IN FATHOMS TAP/
( STATE CAPITAL
- -- STATE AND UNION TERRITORY BOUNDARIES
INTERNATIONAL BOUNDARIES :A/SIJ b-
AND
_____________________________________________
J ~~~~NAGAR
1/I_ tt HAVEI
- 20' lt ^ ;~~~~~~~7 DAHANI
i 2
SA TEL. L 1rE
MAHARA SHTRA
STRUVTURE
/ /
T ARAPll /t
0 10 20 30 40 60 so 70
Kiom.tr, OMBA
/
t~~~~~NNA//
IC~~~~~~~
,&PAKISTAN
GUJARAT INDIA
BOMBAY 'g>
rMAHMAA3HTRA PA
.v
a Bombay
NEEL-U
Area Of
Map
SRI I ~ _ _ , *.flN r
LANKA c-N ..-Fnn.,.N n.e .. n.*.w 10p
Ln _ _ r_ c :RATMNA 9
M.ARCH 1W9