The government has asked Essar Oil to provide within 45 days documentary evidence of deletion of all charges on Ratna R-Series oil fields that were created for raising funds for its Vadinar refinery project, if the private firm wanted to retain the high potential fields off Mumbai.
The negotiating team secretaries (NTS), in its meeting on December 8, decided that the government will withdraw award of the Ratna R-Series fields to Essar Oil Ltd if it failed to provide proof that the revenue generated from oil and gas production from the fields no longer stood guarantee with lenders led by ICICI for their loan to the over Rs 9,000 crore (Rs 90 billion) refinery project.
"The NTS felt the fields or any part of the revenue from it cannot be pledged as security from raising funds for any other project," government sources said in New Delhi.
Ratna R-series fields, which are estimated to hold recoverable reserves of 100 million barrels of oil, were awarded to Essar in 1995, but a contract for beginning oil production could not be signed due to doubts about the firm's ability to finance development of the fields.
Sources said NTS considered as inadequate letters from ICICI stating its "refinery loan will not be secured by way of any charge that would be inconsistent with the terms of the production sharing contract."
NTS, which was asked by the cabinet committee on economic affairs to look into award of the fields to Essar Oil, also wanted proof that ICICI has been authorised by other members of the consortium of lenders that provided finance to Vadinar refinery, for deleting all charges on Ratna R-Series fields.
As if to pre-empt NTS discussion, ICICI last month again wrote to petroleum ministry that, "We have been authorised by IDBI, IFCI, LIC, GIC, New India Insurance Co Ltd, National Insurance Co Ltd, United India Insurance Co Ltd, Oriental Insurance Co Ltd, Punjab National Bank and Allahadab Bank to provide the declaration as lead bank on their behalf."
Sources said in its earlier letter, ICICI had stated: "We shall have no charge whatsoever on Ratna oil fields to secure the loans extended or to be extended by us to Essar Oil to finance the refinery project of the company."
"NTS felt the letters do not give enough comfort and it wanted to see documentary proof that all charges have been relinquished," they said.
Previously, the government had given Essar time till October 15 to free Ratna and R-Series fields from loans it had taken from banks and financial institutions for construction of its refinery in Gujarat by pledging the receivables from the fields as collateral.
Sources said Essar has agreed to the government condition of not assigning or transferring its participating interest or exit the contract until the development plan is achieved or for a period of three years, whichever is later. It will also furnish a bank guarantee in the first year based on the annual expenditure it committed in its bid.
Essar Oil has 50 per cent interest in the fields while Oil and Natural Gas Corporation has 40 per cent. The remaining is with Premier Oil Plc of the United Kingdom.
In order to expedite signing of contract for the fields, Essar has also agreed to the government condition that it cannot divert crude oil from Ratna field for its Vadinar refinery as it has signed a crude offtake agreement with Bharat Petroleum Corporation Ltd.
Ratna and R-Series oil fields are a series of proven discovered fields situated south of Mumbai High basin with a proven in-place reserve of around 500 million barrels of oil and recoverable reserves in excess of 100 million barrels of oil and 2 billion cubic meters of gas.
Essar's share of investment in developing the field is anticipated at $149.09 million.
Financial institutions had on July 21 cleared the debt restructuring package of the over Rs 9,000 crore (Rs 90 billion) Essar Oil refinery with stiff clauses including pledging of EOL's 51 per cent stake with the lenders apart from personal guarantees by the promoters and corporate guarantee of Essar Shipping Ltd.
