Oil stains on the Naga regime

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Untapped potential The Changpang oil field in Wokha, which was abandoned in 1994
Untapped potential The Changpang oil field in Wokha, which was abandoned in 1994. Photo: Caisii Mao

In India, most conflict zones have some mineral resources hidden beneath the land, which are often the reason behind the conflict. Nagaland is no exception to this geography lesson with many insurgent groups leading popular protests across the state.

It is one of the few states in the country with extensive petroleum reserves. The government estimate is around 600 million tonnes. This translates into economically recoverable oil reserves of around 1,600 barrels per day or more than half a million barrels a year. The value of a single barrel is currently between $85 to $88, which makes oil in Nagaland worth a gross annual turnover of more than 260 crore. Though this figure is indicative, it helps hold an economic yardstick to the conflict.

Historically, the Nagas held out from the exploitation of mineral reserves. As per a TEHELKA report (Oil’s not Well for Nagaland by Avalok Langer, 7 December 2013), various rebel groups, protesters, think-tanks and people mellowed down around last year.

Under Article 371A of the Constitution of India, Nagaland enjoys special status that grants the state legislature independence to control the mineral resources of the land. Such federal autonomy unnerved the Centre, which former petroleum minister Veerappa Moily had expressed. But, the autonomy through state-framed rules and regulations instilled confidence in the various groups that claimed to be acting in the interests of the Nagas.

In 1994, the National Socialist Council of Nagalim (Isak-Muivah) or NSCN-IM and the Nagaland Students’ Federation (NSF) had forced the Oil and Natural Gas Corporation (ONGC) to pack up and leave. As per the TEHELKA report, the NSF had softened its stand subject to the Naga people receiving benefits from any mineral exploration. They had even suggested what royalty must go to the state. This is also in line with the Naga concept of land ownership by which the owner will enjoy everything both above and below the land.

Under the powers of Article 371A, the Nagaland government had passed the Nagaland Petroleum & Natural Gas (NPNG) Regulations and the NPNG Rules (both in 2012). It also set up a NPNG Board that would monitor all activities related to oil and natural gas mining. The NPNG regulations stipulated a three-level committee: the first comprising state ministers; the second with senior bureaucrats; and the third with junior government officers, advisers and others.

After the notification of the legislation in 2012, the government floated an Expression of Interest (EOI) for 11 oil and gas zones, including the Wokha oil zone in Wokha district, home to the Lotha Nagas.

A ministerial group gave the permit for the oil zones at Wokha and Peren to a company called Metropolitan Oil & Gas Pvt Ltd. This included the Changpang oil field in Wokha, which was abandoned by the ONGC in 1994 due to opposition from the NSCN-IM and the NSF. In 2007, when the ONGC tried to return, there was local resistance because seepage from the abandoned oil fields had damaged crops and topsoil.

Even though the state government may have autonomy in other regards, the EOI should not be operated in violation of the Central Vigilance Commission (CVC) guidelines.

Any EOI document must also prove that the applicant company has enough technical capabilities to operate the reserve and extract the mineral from it.

However, there are several irregularities in the document and subsequent allotment of Wokha oil zone to Metropolitan Oil and Gas. A think-tank called the Kohima Lotha Hoho has now pointed them out in a public interest litigation (PIL) petition before the Gauhati High Court, which also functions as the High Court for Nagaland.

As per the PIL, the response to the RTI queries show that the Wokha oil zone was gifted away to a new company that had no history of oil and gas extraction.

In fact, the company was formed just a few months before submitting its EOI application for the oil zones in Nagaland.

In its application, Metropolitan Oil and Gas did not disclose any previous experience in exploring for oil and gas in India or abroad.

Every application should make full disclosure about the company’s formations, its memorandum and articles of association and all such details that will help the government arrive at a reasoned order as to why the oil reserve was given to the winning company. However, Metropolitan Oil and Gas did not make any such disclosure about the company and its formation, ownership and board of directors.

Metropolitan Oil and Gas’ application also did not have any contract copies of oil and gas projects that it had worked on. This was also in violation of Rule 7(5) of the NPNG rules, which states that previous experience must be disclosed. Since Wokha is notified as a mixed zone, the oil and natural gas activity would require both exploratory and extractive work. Hence, the company applying for the permit would need to have experience of both exploration and extraction. But, Metropolitan Oil and Gas had never provided any documents to prove it had any previous experience.

The NPNG rules and regulations state that an applicant must prove its financial capabilities that it will able to carry out the project. However, Metropolitan Oil and Gas did not share its financials such as united reports and so on. Of course, one excuse would be that it was a newlyformed company. However, other documents that show its net worth and credit worthiness could have been provided.

Well, it was perhaps not the company’s fault because the government did not ask for any such financial capability.

Nor did the government ask for any specific rates of return it would give back on the project. However, Metropolitan Oil and Gas, of its own accord, promised 18 percent share in revenue to the government. No other company made any such offer.

In the history of Naga civil society activism, the demand had been for a high share in the net income. Naga Hoho, an umbrella of several civil society groups, had demanded up to 40 percent of the net income to landowners and 100 percent job reservation for locals.

However, the government made no effort to negotiate with Metropolitan Oil and Gas to increase the 18 percent offered as share in revenue. Instead, it simply gave it a permit to explore and extract oil and natural gas.

This is also a direct loss to the exchequer as well as the owners of the land that is to be used.

Negligence is not new to Nagaland. The abandoned ONGC project in Changpang finally led to oil leakages that damaged crops, the soil and created a health hazard.

Of course, the Central psu was forced to leave because it was not interested in paying out the high rate of royalty that the Naga people wanted.

Locals feel that if an inexperienced company is given this project, it will lead to situations such as Changpang in the rest of Nagaland. Metropolitan Oil and Gas did not provide any environment management plan, nor any plan to combat any health and safety hazards that might arise from oil extraction.

In July, the Kyong Students’ Union (KSU) presented a memorandum to the chairman of the NPNG board. However, there was no response. Instead, the government imposed Section 144 and beat up KSU demonstrators because they and other groups boycotted the launch of this oil reserve.

During talks with the KSU in August, the then chief minister, Neiphiu Rio, refused to scrap the permit to Metropolitan Oil and Gas, which was given in violation of its own legislation.

In focus Former chief minister Neiphiu Rio has some tough questions to answer about the oil deal with Metropolitan Oil and Gas. Photo: UB Photos
In focus Former chief minister Neiphiu Rio has some tough questions to answer about the oil deal with Metropolitan Oil and Gas. Photo: UB Photos

The curious case of Metropolitan Oil and Gas

A close scrutiny reveals that the promoters of Metropolitan Oil and Gas may have enough experience in the activity of oil and natural gas exploration, but not the kind of history that holds them in good stead. It shows why they would want to keep the information out of an application expressing interest in an oil reserve. One answer is the lack of financial stability and the huge amount of litigation against them, especially recovery suits, as well as regulatory body orders that ban them from capital infusion in one case.

Metropolitan Oil and Gas was incorporated in September 2012, just after the Nagaland government placed an advertisement inviting Expression of Interest (EOI) from oil companies to exploit its reserves. The company’s registered address is in New Delhi, while the directors are Vishal Rastogi, Sameer Rajpal and Ajit Hazarika — all of them had recently retired from the ONGC.

In its EOI application, Metropolitan Oil and Gas had mentioned that the company had experience in oil and natural gas exploration and refining in Africa. The letter also mentioned some experience in Congo and also bitumen extraction in other African countries.

The company also said that it was setting up a large petroleum refinery in India. It named Cals Refineries, SRM Exploration and Spice Energy, among others, as the shareholders of Metropolitan Oil and Gas.

All of these companies have the same registered address — in Vasant Vihar, New Delhi — as well as the same email id provided to the corporate affairs ministry.

Cals Refineries and Metropolitan Oil and Gas also have a common director: Sameer Rajpal.

Cals Refineries executive chairman Deep Rastogi and Metropolitan Oil and Gas director Vishal Rastogi are promoter-directors of another company called Nyra Holdings, which also shares the same registered address in Vasant Vihar, New Delhi.

SRM Exploration and Cals Refineries don’t have any active business income. The former is currently involved in a liquidation (corporate insolvency) proceedings filed by a Czech company at the Delhi High Court for about Rs 70 crore. Hence, there is a stay order that prevents the company from changing any of its assets.

Another company, Virgin Islands-based Dellatora Enterprises, has sued SRM Exploration, the Rastogis and others, asking for a refund of $1.6 million.

The Court of Chancery in the UK has passed an order against Spice Energy and SRM Exploration director Ravi Chilkuri, ordering them to pay $92 million to a company for damages. Chilkuri recently won an appeal to decrease the damage amount.

In 2011, the Cabinet Committee on Economic Affairs rejected a Foreign Investment Promotion Board recommendation that allowed Cals Refineries to raise Rs 1,250 crore of equity through Global Depository Receipts (GDRS).

The Securities Exchange Board of India (SEBI) also found out that Cals Refineries had made false declaration of payments shown in its books as advances to a supplier of refinery equipment. The market regulator held Cals Refineries guilty of gross misconduct and that the company was trying to fraudulently enrich its promoters by issuing the GDRS worth $200 million. In October 2013, the Security Appellate Tribunal (SAT), which hears appeals against SEBI orders, banned Cals Refineries for 10 years from issuing equity to investors.

The erstwhile Neiphiu Rio government seems to have handed over a rich oil reserve to a company that is deeply in the red and needs revival as much as the Wokha oil zone.

The only option that Metropolitan Oil and Gas has to operate this oil field is by inducting fresh capital into the company and taking loans against equity. The promoters have been banned by the SAT from doing so in another one of its businesses due to its illegal business practices.

The creditors of the promoters may also get enforceable orders against them and eventually land the oil reserves in Nagaland in litigation, claiming rights over the promoters’ assets. In the Chancery Court case in UK, the promoters have already indicated payment possibilities of millions of dollars based on their interest in an oil field in Nagaland.

That is, if the promoters do not first sell out the oil reserves to raise money to pay off these other debts.

It might also push Metropolitan Oil and Gas to assume any means necessary for immediate exploration from reserves such as the Changpang oil field instead of formulating and implementing a long-term, sustainable plan.

Spice Energy, which was awarded a project in Tamil Nadu, is unable to start work because of being cash-strapped.

Approaching banks to raise money for this project will be entering a web similar to that of Kingfisher and UB Group. It had the same problem of outstanding loans, which are eventually affecting other group businesses.

In its EOI application, Metropolitan Oil and Gas claims that it does not have direct or indirect association with any company banned by the tribal bodies or suspended by the Nagaland government.

Metropolitan Oil and Gas has the same registered address and email id as SRM Exploration, a company now under liquidation.

In 2007, the Changpang village council had given a petroleum mining lease agreement to SRM Exploration. The Nagaland government had probed the matter, found it illegal and suspended the then village chairman.

This could be a serious false representation on the part of Metropolitan Oil and Gas and it is surprising that the Nagaland government has not carried out any basic due diligence as to whom it is handing two of its oil zones.

While the Nagaland government has claimed autonomy in this matter, it cannot claim supreme authority in matters that directly affect the Naga people.

The matter requires a probe by an independent agency such as the CVC through the CBI as to how the permit was granted in the first place to a company that had no merit whatsoever, especially basic financial credentials.

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