ONGC Videsh Ltd146;s Sudan venture high on risk

The Cabinet had allowed ONGC Videsh Limited OVL to pump in 750 million in an oilfield in strife-torn Sudan on condition that the investme...

The Cabinet had allowed ONGC Videsh Limited OVL to pump in 750 million in an oilfield in strife-torn Sudan on condition that the investment would be insured against all risks. But a year later, OVL has informed the Cabinet that the 670-million it invested in Sudan does not have a political risk insurance to mitigate risks on account of war, terrorism and expropriation.

Last June, OVL was permitted by the Cabinet to buy out Canadian firm Talisman Energy8217;s 25 per cent equity in Greater Nile Oil Project GNOP for 750 million8212;the highest one-time investment by India abroad8212;subject to insurance coverage being comprehensive and finalised in consultation with the Law Ministry. The need for such a cover was raised time and again by an inter-ministerial Committee of Secretaries in view of the long history of civil unrest in Sudan and the ongoing strife between Sudan People8217;s Liberation Army and the Khartoum government.

OVL assured the ministry that expropriation risk was partially covered in the project agreement as it allowed offshore transfer of revenue from crude oil sales as well as international arbitration in case of dispute. Additionally, project insurance had been taken by GNOP promoters from HSBC Insurance Brokers Ltd for a coverage of up to 1,299 million with OVL share amounting to 325 million in case of physical damage to assets.

But insurance cover against war, terrorism and expropriation would come from Political Risk Insurance Policy which could be applied for with the World Bank-affiliated Multilateral Investment Guarantee Agency after the investment was completed and an insurable interest created.

Besides, OVL assured that a Bilateral Investment Protection Agreement was in the offing to cover promotion and protection of investments, national and MFN treatment, compensation for losses, repatriation of investments and settlement of disputes between Sudan and India.

Based on these assertions, the Cabinet was approached again in October to allow OVL to sign agreements with Talisman for equity transfer and access the insurance market for cover against war, terrorism and expropriation.

OVL has informed the Cabinet that the agreements are signed, but there is no protection against the risks.

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The MIGA has informed OVL that as of now it may not be possible to provide political risk insurance. OVL8217;s insurance adviser Oriental Insurance Company has said that cover for war and terrorism would not be available. What was available was insurance cover against confiscation, expropriation, nationalisation and selective discrimination, Oriental informed OVL. Perhaps the silver lining is that the draft of the proposed Bilateral Investment Protection Agreement has been finalised by the two countries and a date for signing it was to be decided.