Does former CEO of Cairn India Ltd P. Elango have anything in common with former Prime Minister Manmohan Singh?
Singh was an unfortunate figure – slammed by everyone for failing to take any decisions during UPA II. He could not control the ministers in his coalition government who marched to the beat of someone else’s drum. His governance was ineffective at best, and non-existent at its worst.
Strangely, parallels are now being drawn between Elango at Cairn India and the hapless Singh at Raisina Hill.
Just about a few weeks week ago, Elango had surprised the domestic oil industry with his sudden decision to quit the company. He did not give any reason; the management of Cairn India also chose to retain a studied silence. We rang up a few friends in the company who also claimed that they knew nothing about the reasons for Elango’s exit.
By nature, Elango was not a high-profile executive. He was not known to have a mercurial temper that could precipitate a showdown on a policy matter. So, what precisely went wrong? On the face of it, he had no reason to go. His exit came soon after CIL announced that it had achieved a production figure of 200,000 barrels of oil per day in its Rajasthan block.
Our initial investigations convinced us that something was terribly wrong and Elango wasn’t ready to reveal what. We, therefore, tapped other sources within the company. “Elango was like Manmohan Singh,” was the terse comment from a senior executive without elaboration. Our source was alluding to the situation under the UPA government headed by Manmohan Singh where decisions were not taken not by the Prime Minister but by Sonia Gandhi.
Circumstances within Cairn India conspired to make Elango as ineffective as Manmohan Singh. In Cairn India, decisions were taken by a coterie of five on the board: two belonged to Cairn India owner Anil Agarwal’s family – his brother and daughter – and the other three were independent directors who sang hallelujahs to the family. Amazingly, Vedanta, the holding company, and Cairn India have two common directors on their boards. As the CEO, Elango had his dreams but his suggestions never seemed to carry any weight.
Elango soon discovered that professionalism had completely disappeared from the higher echelons and there was a serious risk of becoming a party to some unethical acts. The first red flag appeared when the Vedanta management worked out a strategy to divert the surplus funds of Cairn India to group companies. At one stage, it had almost decided to use the funds to buy up the government’s residual stake in another group company, Hindustan Zinc. The recent controversial decision to extend a loan of $ 1.25 billion to Sesa Sterilite is part of the same design -- and Elango wanted no part of it.
But there may be other stress points within the company. Even though Cairn India claims to have doubled in-place reserves in the Barmer block, it is facing serious production problems. The reservoir of Mangala field has started to show a declining trend; and Bhagyam is a near flop. According to sources, the only exception in an otherwise depressing production scenario is the Aishwarya field which is performing better than expected.
Inquiries with partner Oil and Natural Gas Corporation (ONGC) reveals that its geologists are not happy at the way Cairn is managing the reservoirs. However, the ONGC leadership has of late toned down its criticism of Cairn India. But its geologists remain highly critical. The directorate of hydrocarbons (DGH) as usual remains indifferent.
Cairn India has been talking about achieving a production target of 300,000 barrels of oil per day. On present reckoning, the proposed target looks highly unrealistic. Experts within Cairn India maintain that peak production is unlikely to exceed 225,000 barrels per day.
What happens if the government refuses to extend the Barmer production sharing contract after 2020? The Vedanta management is conscious of the risk. Does that explain the unseemly haste to crank up production to extract the maximum before the contract term expires? That seems to be the suspicion within knowledgeable circles.
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