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 Post subject: Exploring oil in Sri Lanka - Deals and No-deals
 Post Posted: Wed Nov 01, 2006 3:59 am 
Exploring oil in Sri Lanka - Deals and No-deals
Director General of Petroleum Resources paid Rs 400,000 a month

Oil exploration activities in this country very justifiably resemble a comedy of error. It also amply demonstrates that the personnel engaged in oil exploration have little or no knowledge of the subject. A huge bungle in the process of exploring oil in Sri Lanka has cost the nation and the rate payers a significantly heavy penalty.

By Wilson Gnanadass
@ The nation 08Oct2006


Oil experts describe this as an insult to the professionals working with Chinese and Indian oil companies who are well versed in the industry to scoff at such an amateurish proposal to pay upfront US$ 100 million for license for an exploration block in the Mannar Basin which is deeper than 3000 metres and identified by the industry as a deep water frontier with no history of shallow water production or discovery.

A huge bungle in the process of exploring oil in Sri Lanka has cost the nation and the rate payers a significantly heavy penalty.

Petroleum Minister last week submitted to the Cabinet a paper seeking for ratification to abrogate the agreement the government reached with TGS-NOPEC Geophysical Company to engage in seismic surveys for the exploration of oil in the North-Western coast of Sri Lanka.

This decision to cancel the deal has now forced the government to pay a fine of US dollars 10.5 million of the rate payer’s money to the foreign company, for not honouring the original agreement.

The oil exploration exercise that commenced under the Chandrika administration and then carried forward by the UNP regime and now the present government has not only burdened the economy of the country but has also exposed the stupidity of the so called experts who signed the deal with the American based TGS-NOPEC Geophysical Company.

Besides, the exercise has also made Sri Lanka a laughing stock before the international upstream oil industry.

The first deal was struck under President Chandrika Kumaratunga and then the second deal was signed under the Premiership of Ranil Wickremesinghe. Though TGS-NOPEC was an American based company, the Sri Lankan government dealt with its regional company based in Perth, Australia.

It is not long ago that the Secretary to the Ministry of Petroleum Resources stated to the media that they have discovered an oil reserve spreading over an area of 35,000 square km in the Gulf of Mannar (GOM) basin providing greater fun for the oil industry.

Industry experts know for certain that existing geological data of the GOM basin is not adequate at all to make such an announcement.

Based on the available data all what a geophysicist can say is that there are geological structures with potential for bearing hydrocarbon beneath the sea bed in the GOM basin and they need further exploration initially with prospecting 2 D seismic followed by 3 D seismic.

While 3D seismic confirms the existence of a hydrocarbon accumulation it is only after drilling test wells and striking oil or gas that one can state that a discovery has been made and drilling appraisal wells only will tell us whether the discovery is commercially viable or not.

This simply shows how bureaucrats try to hoodwink people not only their political masters talking before media on a subject they are not competent to talk at all.

Another comedy unfolded by the Secretary, Petroleum Resources was when he recommended through his Minister to the Cabinet of Ministers to award two exploration blocks from the Mannar basin to India and China on direct nomination basis deviating from the procedure laid down in the Petroleum Resources Act No 26 of 2003.

hydrocarbon accumulation Be that as it may, the Secretary in the same Cabinet Memorandum also sought the approval of the Cabinet to obtain in advance a deposit of US$ 100 million each from China and India to be set off from the petroleum revenue once commercial production of oil and gas is started.

Oil experts describe this as an insult to the professionals working with Chinese and Indian oil companies who are well versed in the industry to scoff at such an amateurish proposal to pay upfront US$ 100 million for license for an exploration block in the Mannar Basin which is deeper than 3000 metres and identified by the industry as a deep water frontier with no history of shallow water production or discovery.

On the contrary the geological risk that the prospective investing companies have to take is so enormous that the government should introduce measures to mitigate such risks and make investment attractive. The proposal to obtain an upfront deposit of US$ 100 million each from these two countries according to some experts appears to be the most amateurish piece of advice given by the Secretary.

According to the original agreement, companies to explore oil should be invited through an open bidding system to obtain exploration license. But shockingly the government is now trying to invite two countries namely India and China and even going to the extent of obtaining in advance a deposit of US dollars 100 million each from these two countries.
DG paid Rs 400,000 a month?

It is also known that about five months back Petroleum Ministry recruited a Sri Lankan born Canadian citizen to the post of Director General of Petroleum Resources with a monthly salary of Rs 400,000 and other perks including a furnished bungalow and vehicle.

He must have probably impressed the Interview Panel headed by the very same Secretary referred to above with his paper qualifications but tax payers of this country have a very legitimate right to ask whether this international expert has contributed to the proposals and the implementation of them.

Petroleum Minister A.H.M.Fowzie confirmed that he was being paid Rs. 400,000 a month.

Earned a good deal of ridicule

Judging from the decisions and recommendations government has made, oil exploration activities in this country very justifiably resemble a comedy of error. It also amply demonstrates that the personnel engaged in oil exploration have little or no knowledge of the subject. Worst is, little knowledge is more harmful and damaging than no knowledge at all.

Adding insult to injury private agendas of some politicians, bureaucrats and technocrats aiming at making quick million dollars putting this project in jeopardy have earned for us a good deal of ridicule.

Media reports on the following incidents, decisions, proposals or advices made or given by the “petroleum resources managers” substantiate the fact that oil exploration activities in its entirety are mismanaged for lack of knowledge and skills or for a desire to earn a few million US dollars.

Petroleum Minister A.H.M.Fowzie

Minister Fowzie has no clue about the future of the Petroleum exploration in Sri Lanka.

He says he has been brought under pressure from every corner regarding the exploration of oil in Sri Lanka. He is of the view that even the present decision is due to the thinking of the majority of the politicians.

“Now we are forced to compensate TGS-NOPEC. I understand it is a huge sum of money, but what to do? If the majority of the politicians want this contract scrapped, then what can I do? This is not my personal project,” he said.

He admitted submitting a cabinet paper seeking approval for the abrogation of the contract with TGS-NOPEC.

“You see we must learn to take good decisions. The whole problem here is that we fail to do this and as a result we have to pay for it,” he added.


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