Misadventures in oil exploration: Texana and Cairn in Nepal

In most countries, oil companies don’t pack up and leave quietly. They have to be forced out. But in Nepal, Texana (American) and Cairn (Scottish) announced a self-imposed suspension of their oil exploration operations last week, citing “force majeure.”

They have done this several times before. In response, segments of the Nepali media cited fairly unimpressive figures in oil royalty and declared these events as a loss for the country, and blamed the government for being business-unfriendly.

Somehow, parts of the national media managed to enslave the country’s economy to a nonexistent petro-economy before a single barrel of oil has even been pumped out from Nepali territory.

To most of the readers of that news, the entire affair must’ve come across as just another example of poor bureaucracy run by policymakers who can’t get anything right. But it’s worth rethinking the situation as a possible victory for Nepal.

A brief history of Nepal’s oil exploration projects:

Started in 1982 as a World Bank initiative, the Petroleum Exploration Promotion Project (PEPP) was developed with the technical and financial assistance of the Bank. By 1985, almost 1/3rd of Nepal, that is, just about all the Terai region, had been divided into 10 blocks to be auctioned off for oil exploration to foreign countries.

Part of the 1982 World Bank document for Petroleum Exploration Promotion Project.

Part of the 1982 World Bank document for Petroleum Exploration Promotion Project.

Almost one third of the Nepal has been plotted out for oil exploration. Currently all 10 blocks have been leased out to foreign companies. Map Credit: Petroleum Exploration Promotion Project, Nepal.

Almost one third of the Nepal has been plotted out for oil exploration. Currently all 10 blocks have been leased out to foreign companies. Map Credit: Petroleum Exploration Promotion Project, Nepal.

A WWF map outlines the Oil exploration blocks in red and the vast swatch of Nepal's conservation and protected areas that fall within those blocks.

A WWF map outlines the Oil exploration blocks in red and the vast swatch of Nepal’s conservation and protected areas that fall within those blocks.

In 1986, Shell and Triton bought Block #10 in Eastern Nepal but abandoned its project soon when it didn’t strike any oil near Biratnagar. People in the project will argue now that Shell just didn’t drill deep enough. In 1992, 10 years after the project was initiated, its Completion Report was produced.

Violation of Petroleum Act?:
In 1998, the Texas-based company Texana Resources signed a deal with the Nepali government for Blocks #3 and #5. The Petroleum Act that governs the Petroleum Exploration Promotion Project (PEPP) in Nepal stipulates a company may own only two of the 10 Exploration Blocks.

Then, in 2004, came along Cairn Energy. The Scottish company had made it big after striking oil in India and bought Blocks #1, #2, #4, #6 and #7 in Nepal, three more than the Act permits.

Last year, a representative of Texana explained briefly over the phone that he was unable to discuss the company’s stakes in Nepal and declined to comment further on the issue or respond to a follow-up email. It appears now the company had been trying to work out the transfer of their blocks to Canada’s Patriotic Petroleum Corp.

However, Cairn had been trying to buy Texana’s blocks at least since 2007. This would have allowed Cairn to own seven consecutive blocks, leaving only three free.

The Parliamentary Committee on Natural Resources and Means had shot down this proposal. Two attempts to contact Cairn’s communications officers in 2011 yielded no response at all.

Still, Cairn as well as the officials involved in the case seems to already have violated the Act by allowing Cairn to own five blocks.

Cover pages of the contracts between the Nepali government and the oil exploration companies Texana and Cairn. These documents remain "confidential."

Cover pages of the contracts between the Nepali government and the oil exploration companies Texana and Cairn. These documents remain “confidential.”

Texana’s threats:
It has been reported that Texana is “considering international arbitration” charges against Nepal and has written to the Nepali Embassy in Washington DC and the American Embassy in Kathmandu.

If anything, it portrays Texana as a flustered company playing the last defense strategy on the off chance that the Nepali government will feel pressured enough to process their requests.

If Texana does actually pursue that legal path, it must be welcomed. Then, the Government of Nepal, and more importantly, the People of Nepal, must make sure the case is processed publicly. Let’s find out what all documents related to their deals in Nepal say, and let’s find out who would be paying for Texana’s legal fees.

It would be just wonderful to finally have representatives of the illusive company stand before Nepal’s, or any, judiciary system and the Nepali public, or the world media, and answer questions regarding their operations, transactions, and presence in Nepal.

Were the case to be filed in America, the right to information on the matter may become even easier, and the media glare possibly intense.

The entire PEPP is one of the most opaque undertakings by Nepal. A handful of people designed it without consultations with any local stakeholders and communities.

It is a project that will entirely serve the interests of foreign companies. The extraction- and mining-based projects are set on some of the most fragile and fertile regions of the country. Any legal battle regarding any of the deals would bring about the opportunity to finally open up the issue for public discourse.

Should Texana be investigated?:
The U.S. Foreign Corrupt Practices Act (FCPA) can simply be defined as an Act that makes it illegal for American corporations to bribe foreign officials. The Obama Administration has actually managed to conduct several high-profile cases using this Act.

Texana has been lobbying the Nepali government to push through its deal with Cairn for about a decade. In those years, there have been multiple turnovers of prime ministers and line ministers and other officials in the governments.

Let’s make it official: Has Texana, and Cairn, ever engaged in any corruption in Nepal? Have conflicts of interests been overlooked for the sake of their business deals here? Let’s have the respective countries, where these companies are based, clear up this issue for the people of the country in which these companies have been working.

The American Embassy in Nepal has been working tirelessly to improve American-Nepal business relations, and to help American companies to set up shop here.

What better way to encourage all of this than to also say that the Government of the United States will not stand for American businesses engaging in corruption in Nepal.

In fact, the onus might even be on the American Embassy in Kathmandu to encourage the relevant Department to ensure Texana has never violated the FCPA during its operations here.
What loss?:
It is baffling that any news media would report the suspension of activities by Texana and Cairn as a loss of Nepal without looking at the issues in a larger perspective. It is even unfair to make such a suggestion without actually calculating what the loss could have been if those companies had succeeded in doing what they set out to do in Nepal: Find and extract crude oil.

The Terai is Nepal’s breadbasket. Any seasonal fluctuation in production there can put Nepal’s food security at greater risk. The forests in the region serve not just Nepal’s interests but also help India by checking floods and maintaining water tables.

A farm in Dhangadi, in western Nepal. This region falls under Petroleum Exploration Block #1. Photo: Kashish Das Shrestha

A farm in Dhangadi, in western Nepal. This region falls under Petroleum Exploration Block #1. Photo: Kashish Das Shrestha

Outside of the National Parks, Terai also serves as a critical South Asian ecological corridor for rare and endangered wildlife. Simply putting the entire Terai region on the global market for oil exploration has already put all of these elements in jeopardy.

So, would ending the project be an actual long-term loss for Nepal? Must our economic growth be hinged on one of the most unsustainable and devastating forms of natural resource extraction and consumption?

No country should have to cower down to foreign companies, especially the kind that suck out your natural resources, make great profits on it, and leave behind a trail of long-term ecological disasters, and in many cases, a socio-economic mess.

It is absurd, and misguided, that a national daily would behave like an apologist for these companies because Nepal made it difficult for them to peacefully find and extract oil.

Oil is coming out of Libya and going to the world. Oil is coming out of Sudan and going to the world. Oil is coming out of Nigeria and going to the world.

To genuinely believe that these two companies are leaving Nepal because working conditions are not right might be slightly naïve and aloof.

Texana has no use for its blocks except to sell them to a new buyer. Cairn is the only real buyer around. And Nepal Government is shopping for new buyers for the remaining three blocks in the east, which surely must irritate both Texana and Cairn.

While Cairn made serious investments in Nepal, there is no evidence to suggest that Texana ever had the same commitment here.

Cairn has a lot going on but Nepal may not really be on the top of their priority list. When Cairn came to Nepal, it was the new hotshot in the global oil exploration industry. Their standings in the industry may have changed a bit since.

Last year, Cairn announced perhaps one of their largest projects yet: oil exploration and extraction in the Arctic Sea. The project turned into a massive controversy and an ego war between Greenpeace and Cairn.

When Cairn failed to find oil there, it also turned into a fiscal loss and an embarrassment. In India, Cairn deals had come under government scrutiny and suffered major setbacks. And so last year, the company shifted its focus to more promising and lucrative oil and gas exploration projects in Sri Lanka.

Digging into Nepali territory to find and extract oil is not in Nepal’s general interest – ecological, economical, or social. Developed countries are finding that it isn’t even in their real long-term interest to do this.

If Nepal plays its cards right, it has the opportunity to become a serious producer and consumer of renewable energy, such as solar. Nepal’s long-term energy and economic future is not buried deep in its grounds. We need to stop looking down, and start looking up, and all around.

Texana and Cairn might feel like they have had a misadventure in Nepal right now. But should things have gone as planned for their oil exploration projects, it could very well have become one of Nepal’s greater misadventures.

Part 1 of the investigative series Oil Exploration in Nepal, as published (June 15, 2012) in Republica national daily.

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