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Wednesday, September 30, 2009

ONGC-Hinduja JV loses rights to dev Iran's oilfield to China

In a major setback to India's oil diplomacy, the ONGC-Hinduja Group alliance has lost the rights to develop Iran's South Azadegan oilfield to CNPC of China.

The joint venture of ONGC Videsh - the overseas arm of state-run Oil and Natural Gas Corp — and Hinduja Group firm Ashok Leyland Project Services Ltd, was touted to get at least 45 per cent stake in the 260,000 barrels per day South Azadegan oilfield but Beijing apparently offered multi-billion dollar soft loans to bag the rights, industry sources said.

The China National Petroleum Corp (CNPC) on Sunday signed a contract with National Iranian Oil Co's overseas subsidiary, Naftiran Intertrade Co (NICO) in Lausanne, Switzerland to take 70 per cent stake in the oilfield along the Iraqi border.

NICO, which held 90 per cent stake in the field, would be left with 20 per cent interest while Inpex of Japan would hold the remaining 10 per cent.

Sources said China has agreed to even contribute NICO's share of the $2.5 billion cost for developing the field that holds an estimated 42 billion barrels of oil reserves, one of the world's largest finds in the last 30 years.

CNPC had in January won rights to develop the North Azadegan oilfield and the Indian alliance was preferred for the southern fields as Iran was said to be against giving the entire block to one firm.

South Azadegan and Phase-12 of the giant South Pars gas field in the Persian Gulf were two projects the Indian joint venture was pursuing in Iran.

An official in the ONGC-Hinduja joint venture confirmed losing South Azadegan oilfield to the Chinese but said the development rights to Phase-12 of South Pars field were yet to be decided.

China, which has ignored western concerns over Tehran's nuclear programme, has secured several oil and gas projects in Iran since 2005, including Yadavaran oilfield and preliminary agreements for development of North Pars gas field and Phase- 11 of South Pars field.

Sources said China has used its vast foreign exchange reserves - which are nearly double of India's $1.1 trillion GDP - to give loans to oil producing countries. This year it has lended nearly $50 billion to Russia, Kazakhstan, Brazil and Venezuela in return for oil supplies.

Iran is offering better fiscal terms like a 3 per cent higher rate of return on the investments in oil and gas fields, to Chinese firms.

Indian firms, they say, are facing slight resistance as New Delhi deterred on importing natural gas from Iran and has made statements asking the Ahmednijad regime to fulfil its obligations as a signatory to the Nuclear Non-proliferation Treaty (NPT).

Also, while Pakistan has gone ahead and signed an agreement on buying gas through the long-delayed Iran-Pakistan-India gas pipeline, New Delhi continues to play from the sidelines.

Initially, Swiss-based NICO had 90 per cent share for the development of South Azadegan oilfield and 10 per cent of the project was with Inpex.

However, NICO was unable to finance the project and ONGC -Hinduja Group was said to get half of its share, sources said, adding Hindujas had even signed a preliminary deal with NIOC in August 2007 for South Azadegan and South Pars Phase-12.

Under Iranian law, companies hand over operations of fields to NIOC after development and then receive payment from oil or gas production for a few years to cover their investment. The so-called buy-backs provide for a fixed return on the investments made by the companies.

South Azadegan would produce 150,000 barrels per day (7.5 million tonnes a year) of oil in Phase 1 and another 110,000 bpd (5.5 million tonnes per annum) in Phase-II.

CNPC, sources said, would invest $1.76 billion in the North Azadegan oilfield that it won in January. North Azadegan is to produce 75,000 barrels per day of oil in 48 months. The period of development and reimbursement would be 12 years.

Azadegan, in west Iran and close to Iraqi border, is the world's biggest united oilfield in last 30 years and has 42 billion barrels of oil reserves. It measures about 900 sq km - including southern and northern part.

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