Jul 17: The context of BP boss Bob Dudley`s visit to India last week was no different from that of his earlier visits. The government may have changed but the issues seem to remain the same. The question that comes to mind now is whether this is really a failure on the part of the India team of BP, headed by Sashi Mukundan, in anticipating and then intervening in time to create the right kind of policy environment for the multinational or were the circumstances such that they were beyond the control of the team? Will Dudley have to make the same trip again, walking along the same corridors of power, a few months down the line to make another plea for a gas price increase? 
8The point to note is that no country head, other than Mukundan, has overseen such a tremendous destruction of investment value in India`s corporate history and yet continue to retain his job. BP`s $7.2 billion investment for a 30% stake in RIL`s blocks along with additional cash calls and capital cost recovery by the government add up to a vast sum of money by any yardstick. And at current profit petroleum accruals of just around $20 million a year, it is an abysmal return on investment. BP had recently taken a $830 million write down in the value of its investment in the D-6 block.
8So how far is Mukundan really accountable for this debacle? Mukundan can always turn around and say that the decisions taken by the government of India -- particularly pertaining to an increase in gas prices -- were motivated by political rather than economic considerations and given that the circumstances were outside his control, he cannot be held guilty for the destruction of value. If this indeed were to be his argument, it will not really cut much ice because there were at least two occasions within the past 15 months when he could have intervened to halt the precipitous decline in the fortunes of BP had he been more clued on to goings-on in the petroleum ministry.
8Mukundan can take recourse to yet another excuse to wriggle out of the tight situation that his company finds itself in today: that it is not the multinational alone but majority partner RIL which should take the rap for the inability to raise the price of gas. But this argument too can be set aside as RIL is not on the same financial footing as BP in these blocks. RIL has more or less broken even with its investments in the D-6 block and over and above that it has pocketed $7.2 billion from BP by parceling out a 30% stake. On the other hand, for BP, the investment is a sunk cost. There is clearly more at stake for BP than RIL.
8The BP India head also cannot absolve himself of blame, more so as he began playing a pivotal role as the interlocutor after RIL decided in the first half of 2014, for reasons that are not yet fully known, to take a backseat when it came to engaging with the government over the issue of gas pricing, passing the baton on to BP instead. The arrangement was possibly a result of too much flak attracted by RIL over the unbridled campaign it had launched to raise the price of gas. "We brought the gas price up to $8.4/mmbtu by ensuring that the Rangarajan Committee`s recommendations were implemented , leaving the rest to BP," a top RIL executive once told this website. From there on, Mukundan and his team were put in charge to take the march forward. But the question is whether Mukundan ever really understood the heady mix of politics and economics that go into the decision making process in New Delhi? As a professional who parachuted himself into the Delhi durbar, did he ever gain entry into the inner coteries where the real decisions are taken or was his time spent on making presentations to sundry bureaucrats and couriers?
8There were two distinct setbacks -- both wrought by bureaucratic meddling rather than by political intervention-- that set the clock firmly back and in both cases Mukundan could have intervened to retrieve the situation. One was BP`s failure to anticipate and intercede with the petroleum ministry bureaucracy to prevent a reference to the Election Commission of the impending gas price hike from April 1, 2014 based on the Rangarajan Committee report. Since the gas price hike was decided before the elections were announced, its implementations should have been automatic but the Joint Secretary in the ministry decided, in consultation with the petroleum secretary, to alert the Election Commission instead, leading to the deferment of the price hike. Ironically this was around the same time that RIL was able to divert crude from the MA field in the D-6 block away from the public sector CPCL to itself, even though the PSC says that such crude can only be diverted to an affiliate company and not to the producing company itself. Some amount of astute lobbying, just as RIL did for diversion of crude supply, could have prevented the Election Commission from stepping in but clearly the BP team was not in action in Shastri Bhavan at that point in time.
8Yet another opportunity was allowed to slip by when it came to interpreting the timeline from when the premium on deepwater gas would become applicable. The cut off wasn`t exactly dictated by the Cabinet but the bureaucrats in the ministry later set the date arbitrarily as November 2014, thereby keeping the RIL-BP combine`s best discoveries out of the premium. This can be regarded as Mukundan`s biggest failure, for even through he gave a presentation or two in the ministry, he wasn`t seen as working hard enough to push back the timeline. 
8Now that the ministry is again looking at the gas price premium, Mukundan had no option but to field Dudley one more time in New Delhi. That was an astute move, because the responsibility for any failure to elicit the right gas price would vest on Dudley as it was always the case in the past and not on Mukundan. 
8The sympathy is with Dudley for he is being forced to clean up the mess that should have been cleared up by now. The BP chief faces an uphill battle in trying to push a politically sensitive government to retract from a position that its opponents are likely to interpret as an attempt to retrospectively enforce an eligibility criterion for the BP-RIL`s discoveries so that they qualify for the gas price premium. A businessman is always willing to do a deal at any cost but it must have indeed been humiliating for Dudley, as the CEO of one of the world`s most powerful companies, to look for a settlement on the gas price issue even as he fights the Indian government in a no-holds-barred legal battle for his right to get a market price for the gas he produces in the KG Basin. And this is a situation that could have been avoided had Mukundan done his job well. 
8All this begs the question whether Mukundan is really the right fit for the job? There is little contribution that the BP India head makes to the technical side of the multinational`s operations in India, involving deepwater exploration and production, for that is entirely managed by expatriates  who work more or less in an autonomous fashion. The India head`s role is mostly confined to dealing with the government and that is a job that Mukundan hasn`t done well at all. If the economics of gas production is so clear, why isn`t the government buying it, is the question that needs a straight answer from Mujundan, for there is no other instance in India where a multinational would spend so much money and get no return on it. 
8It is up to Dudley now to decide what he needs to do next with his investment in India. The BP brass has figured out by now that the picture on the ground is not as rosy as as is shown in presentations given in the London office by the India team. What are the multinational`s options  if the gas premium falls short of expectation once again and it can`t kick start the discoveries? Only time will tell what lies ahead for BP and Sashi Mukundan and his team.

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BP's debacle in India: Shouldn't Sashi Mukundan take the rap?

The context of BP boss Bob Dudley`s visit to India last week was no different from that of his earlier visits. The government may have changed but the issues seem to remain the same. The question that comes to mind now is whether this is really a failure on the part of the India team of BP, headed by Sashi Mukundan, in anticipating and then intervening in time to create the right kind of policy environment for the multinational or were the circumstances such that they were beyond the control of the team? Will Dudley have to make the same trip again, walking along the same corridors of power, a few months down the line to make another plea for a gas price increase? 
8The point to note is that no country head, other than Mukundan, has overseen such a tremendous destruction of investment value in India`s corporate history and yet continue to retain his job. BP`s $7.2 billion investment for a 30% stake in RIL`s blocks along with additional cash calls and capital cost recovery by the government add up to a vast sum of money by any yardstick. And at current profit petroleum accruals of just around $20 million a year, it is an abysmal return on investment. BP had recently taken a $830 million write down in the value of its investment in the D-6 block.
8So how far is Mukundan really accountable for this debacle? Mukundan can always turn around and say that the decisions taken by the government of India -- particularly pertaining to an increase in gas prices -- were motivated by political rather than economic considerations and given that the circumstances were outside his control, he cannot be held guilty for the destruction of value. If this indeed were to be his argument, it will not really cut much ice because there were at least two occasions within the past 15 months when he could have intervened to halt the precipitous decline in the fortunes of BP had he been more clued on to goings-on in the petroleum ministry.
8Mukundan can take recourse to yet another excuse to wriggle out of the tight situation that his company finds itself in today: that it is not the multinational alone but majority partner RIL which should take the rap for the inability to raise the price of gas. But this argument too can be set aside as RIL is not on the same financial footing as BP in these blocks. RIL has more or less broken even with its investments in the D-6 block and over and above that it has pocketed $7.2 billion from BP by parceling out a 30% stake. On the other hand, for BP, the investment is a sunk cost. There is clearly more at stake for BP than RIL.
8The BP India head also cannot absolve himself of blame, more so as he began playing a pivotal role as the interlocutor after RIL decided in the first half of 2014, for reasons that are not yet fully known, to take a backseat when it came to engaging with the government over the issue of gas pricing, passing the baton on to BP instead. The arrangement was possibly a result of too much flak attracted by RIL over the unbridled campaign it had launched to raise the price of gas. "We brought the gas price up to $8.4/mmbtu by ensuring that the Rangarajan Committee`s recommendations were implemented , leaving the rest to BP," a top RIL executive once told this website. From there on, Mukundan and his team were put in charge to take the march forward. But the question is whether Mukundan ever really understood the heady mix of politics and economics that go into the decision making process in New Delhi? As a professional who parachuted himself into the Delhi durbar, did he ever gain entry into the inner coteries where the real decisions are taken or was his time spent on making presentations to sundry bureaucrats and couriers?
8There were two distinct setbacks -- both wrought by bureaucratic meddling rather than by political intervention-- that set the clock firmly back and in both cases Mukundan could have intervened to retrieve the situation. One was BP`s failure to anticipate and intercede with the petroleum ministry bureaucracy to prevent a reference to the Election Commission of the impending gas price hike from April 1, 2014 based on the Rangarajan Committee report. Since the gas price hike was decided before the elections were announced, its implementations should have been automatic but the Joint Secretary in the ministry decided, in consultation with the petroleum secretary, to alert the Election Commission instead, leading to the deferment of the price hike. Ironically this was around the same time that RIL was able to divert crude from the MA field in the D-6 block away from the public sector CPCL to itself, even though the PSC says that such crude can only be diverted to an affiliate company and not to the producing company itself. Some amount of astute lobbying, just as RIL did for diversion of crude supply, could have prevented the Election Commission from stepping in but clearly the BP team was not in action in Shastri Bhavan at that point in time.
8Yet another opportunity was allowed to slip by when it came to interpreting the timeline from when the premium on deepwater gas would become applicable. The cut off wasn`t exactly dictated by the Cabinet but the bureaucrats in the ministry later set the date arbitrarily as November 2014, thereby keeping the RIL-BP combine`s best discoveries out of the premium. This can be regarded as Mukundan`s biggest failure, for even through he gave a presentation or two in the ministry, he wasn`t seen as working hard enough to push back the timeline. 
8Now that the ministry is again looking at the gas price premium, Mukundan had no option but to field Dudley one more time in New Delhi. That was an astute move, because the responsibility for any failure to elicit the right gas price would vest on Dudley as it was always the case in the past and not on Mukundan. 
8The sympathy is with Dudley for he is being forced to clean up the mess that should have been cleared up by now. The BP chief faces an uphill battle in trying to push a politically sensitive government to retract from a position that its opponents are likely to interpret as an attempt to retrospectively enforce an eligibility criterion for the BP-RIL`s discoveries so that they qualify for the gas price premium. A businessman is always willing to do a deal at any cost but it must have indeed been humiliating for Dudley, as the CEO of one of the world`s most powerful companies, to look for a settlement on the gas price issue even as he fights the Indian government in a no-holds-barred legal battle for his right to get a market price for the gas he produces in the KG Basin. And this is a situation that could have been avoided had Mukundan done his job well. 
8All this begs the question whether Mukundan is really the right fit for the job? There is little contribution that the BP India head makes to the technical side of the multinational`s operations in India, involving deepwater exploration and production, for that is entirely managed by expatriates  who work more or less in an autonomous fashion. The India head`s role is mostly confined to dealing with the government and that is a job that Mukundan hasn`t done well at all. If the economics of gas production is so clear, why isn`t the government buying it, is the question that needs a straight answer from Mujundan, for there is no other instance in India where a multinational would spend so much money and get no return on it. 
8It is up to Dudley now to decide what he needs to do next with his investment in India. The BP brass has figured out by now that the picture on the ground is not as rosy as as is shown in presentations given in the London office by the India team. What are the multinational`s options  if the gas premium falls short of expectation once again and it can`t kick start the discoveries? Only time will tell what lies ahead for BP and Sashi Mukundan and his team.