Takshashila Policy Brief - Reforming ONGC Videsh for India's Energy Security

Executive Summary

ONGC Videsh Limited (OVL) is the overseas arm of ONGC, India’s primary nationalised oil company. OVL can and must play a critical role in ensuring India’s energy security, which must involve actually securing increased oil and natural gas supplies for the country. Energy security is a bottleneck for India to get back to high economic growth, and OVL needs comprehensive reforms in order to truly contribute to this goal.

In a global oil market that is increasingly captured by nationalised oil companies (NOCs), the role of OVL only increases in prominence. Consequently, OVL must move beyond focusing on acquisition of acreage and drilling rights alone, to examining the entire supply chain of getting oil and natural gas to India. This requires a more strategic approach to acquisitions, which are currently driven by the imperative to rapidly reinvest profits and cash surpluses, so as to prevent their being appropriated by the government to subsidise loss-making domestic public sector undertakings (PSUs).

This policy brief proposes six strategies for OVL to secure deposits, extraction, supply routes and technology. OVL can build technological competencies by entering into joint ventures with market leaders and use it to unlock greater reserves at home. OVL can also enter swap deals and reciprocal arrangements to bring major oil companies (both nationalised and international) to India. To secure more reliable and inexpensive supplies and reliable supply routes, OVL should concentrate on countries where it enjoys unique leverage or soft power advantages. OVL can collaborate with other NOC competitors and avoid being lured into bidding wars with them. It should also cultivate alliances and bidding consortia with private sector players, both domestically and internationally. Finally, OVL should ensure that political risk is comprehensively accounted for, and develop contingency plans for disruptions in supply or supply routes.

This brief also raises certain aspects of domestic policy as necessary counterparts to these reforms. Investment, taxation and pricing of oil and natural gas in particular must be consistent and transparent to help to restore investor confidence in India, and critical sea lines of communication (SLOCs) must be secured.

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