Petroleum Minister S. Jaipal Reddy takes on RIL in post-liberalisation era
Reliance Industries has come up against a tough taskmaster in Petroleum Minister S. Jaipal Reddy. Several big-ticket proposals of the company are stuck at the petroleum ministry, something that people who follow the company and the ministry say is unprecedented.
Anilesh S Mahajan
- Feb 29, 2012,
- Updated Mar 13, 2012 7:26 PM IST
When P.M.S. Prasad enters a building, doors tend to open for him. The head of Reliance Industries Ltd's (RIL) oil and gas business certainly is not used to being kept waiting.Unusually, he had to do just that one wintry evening in December last year, when he walked into Petroleum Secretary G.C. Chaturvedi's office in New Delhi's Shastri Bhawan. The secretary's staff asked Prasad to wait in the anteroom along with other hopefuls seeking a meeting. A few minutes later, he was told that a meeting would not be possible since he did not have a prior appointment. Silently, the embarrassed Prasad left.No one could have imagined such a thing happening in the petroleum ministry to a top executive from RIL, India's largest, and arguably, most powerful enterprise.In many ways, the snub epitomises the state of RIL's relations with the Ministry of Petroleum and Natural Gas since S. Jaipal Reddy began helming it in January last year. Several big-ticket RIL proposals are stuck at the petroleum ministry, something that people who follow the company and the ministry say is without precedent.Reddy is perhaps the first minister who has taken on RIL in the post-liberalisation era. The buzz in political circles is that he was sent to the petroleum ministry to remove turbidity in decision making. The day he took over, Reddy told reporters: "I am a new minister in an old government. It would be unfair to expect me to bring in new policy." Strictly speaking, he has not done so. He has simply followed the rulebook - very zealously. Some liken his insistence on following the rules to former prime minister V.P. Singh's resistance of RIL founder Dhirubhai Ambani in the mid-1980s.
The company, instead, has dug in its heels. It sent the petroleum ministry its arbitration notice on the evening of November 24, the same day Chairman Mukesh Ambani met Prime Minister Manmohan Singh and Finance Minister Pranab Mukherjee. In a press release four days later, it said: "Reliance and its partners are entitled under the PSC with the government of India to recover their full costs from the revenues generated… The PSC contains no provision which entitles the GoI (government of India) to restrict the costs recovered by the company by reference to factors such as the level of production or the extent to which field facilities are utilised.""Whether the government or Reliance is at fault is debatable. But the fact is, the country is suffering," says former minister Naik. Aiyar contrasts the arbitration attempt with RIL's claims in 2004, when it announced the gas find. "It would not have come to this if they had lived up to their boasts a few years ago. They were telling the country that we (India) may not have to go around the world looking for gas, as Reliance has found gas in the KG basin," he says.On February 19, Reddy visited the KG-D6 block, becoming the first Union minister to do so. He later reiterated that the ministry would slap a notice on RIL for the decline in gas production.The two sides stand eyeball to eyeball on many other fronts. The DGH has been sitting on several other RIL proposals for a while now. It has not allowed the company extensions for exploration of a block in the Cauvery basin. And it is yet to clear several exploration proposals by RIL, including for the NEC 25 block in the Mahanadi basin, off the coast of Orissa. Geologists believe that the Mahanadi basin has the most potential on India's east coast after the KG basin. Currently, the petroleum ministry is looking into alleged irregularities in the allocation of condensate from the KG-D6 block to RIL's refinery in Jamnagar. The condensate is refined to obtain downstream products, such as petrol. The ministry is also locking horns with the company on the issue of pricing and allocation of gas from its coal bed methane (CBM) blocks in Sohagpur, Madhya Pradesh.The good old daysFor RIL, all this is a far cry from the way things used to be. The history of Reliance's relations with the government is well-chronicled. In the 1980s, news daily The Indian Express published a series of articles by journalist Arun Shourie and chartered accountant S. Gurumurthy on how the company allegedly used its political connections to break the law.One of the stories talked about Reliance importing textile machinery components to increase capacity beyond its licensed limit. In 2002, when the NDA was in power, the company made a successful bid for a 26 per cent stake in state-owned plastics maker IPCL, gaining managerial control. Many had argued that the divestment to RIL would give the company dominance in the market for petrochemical products, especially with duties on imported products as high as 25 per cent. They were overruled by then prime minister Atal Behari Vajpayee and, ironically, Arun Shourie, who had by then become the minister for disinvestment. The minister argued RIL's case passionately in Parliament, saying: "In a village, a cobbler is a monopolist, but you do not want to penalise the cobbler for being the only cobbler in a radius of five miles." IPCL was fully taken over by the Reliance Group in April 2007.In 2003, Reliance Infocomm, an RIL subsidiary (now RCom, an Anil Ambani company), and Tata Teleservices, both fixed-line operators, benefited from a government decision to allow fixedline operators to offer mobile services - giving them entry into a multi-billion dollar business. In 2007, one of the units in RIL's Jamnagar refinery was declared an export oriented unit, allowing it to sell refined crude oil in the global market. It is the only such refinery in the country. In 2010, the Commerce Ministry levied an additional duty of 22 per cent on imported petrochemical products - a decision that was revoked in January 2011, after protests by the Saudi Arabian government.After retiring, several bureaucrats have served and continue to serve on RIL group company boards, while others work as consultants. Former power secretary D.V. Kapoor serves on the RIL board. In 2000, former IPCL CMD K.G. Ramanathan resigned a government post and joined Reliance Power (now an Anil Ambani company) as a director. This was before the IPCL stake divestment and at a time when RIL was looking to build its energy portfolio.Many RIL employees in the energy sector are former government employees from state-owned companies such as ONGC, IndianOil and Bharat Petroleum. Geoscientist Rabi Bastia went on a sabbatical from ONGC in 1996 to join RIL. He is now a Vice President, heading exploration operations at RIL. Bastia is credited with the huge gas find in the D1 field at KG-D6 block, in 2002, as well as RIL's discoveries in the Mahanadi Basin. Incidentally, Ganguly, too, was formerly with ONGC.To be sure, it is standard operating procedure for businesses to cultivate close relationships with bureaucrats and ministers or hire experts from the government or state-owned companies. Such examples abound in groups such as Sterlite, Arcelor Mittal, Essar, Bharti Airtel, Hyundai, and many other companies. But even by those standards, RIL and the Ambanis outshine their peers and have leveraged what analysts call the ability to manage the policy and regulatory environment to their advantage.Notes to accountsMinister Reddy is trying to ensure that there is no repeat of past mistakes by the petroleum ministry. In September 2011, the CAG came down hard on the ministry for allowing RIL to retain the entire 7,645 sq km KG-D6 block in violation of the PSC. Under the terms of the contract, RIL should have relinquished 25 per cent, or more than 1,900 sq km, of the total area outside the discoveries in June 2004 and 2005. This would have allowed DGH to call for fresh bids for the area and potentially earn fresh revenues.But RIL claimed that the entire block was a discovery area and sought to retain it. The claim was studied by the DGH, then headed by V.K. Sibal, and subsequently by a committee headed by Sundareshan, who was then the ministry's additional secretary. Both agreed with RIL's contention and it was allowed to retain the entire area.Today, Sibal is under the lens for allegedly granting undue favours to RIL, including allowing the company to increase expenditure on the KG-D6 field from $2.4 billion to $8.8 billion. Going by precedent, says a retired senior CBI officer, if the evidence leads to RIL, its executives can be booked or, at least, questioned. The CAG report was also critical of government oversight of the project and sought an "in-depth review" of 10 contracts, eight of which were awarded by RIL to the Aker Group on a single-bid basis.The cold war between the two sides has taken a bit of a toll on RIL . Since January 20, 2011, the day Reddy became petroleum minister, shares of the company have shed 16.8 per cent in value compared to a 5.7 per cent erosion in the Bombay Stock Exchange index. (RIL shares were down 37 per cent between January and December 2011, before the current stock market rally.) "The market is observing things very minutely. The major trouble for the company is the more than 40 per cent dip in production at KGD6," says Bhavesh Chauhan, senior analyst at Mumbai brokerage, Angel Broking.RIL's Ganguly says "things are positive" with the ministry "at this point in time". He points to the recent approval of what is called the "declaration of commerciality" and "optimised field development plan" for the D-34 gas field in the KG-D6 block, which will allow the company to sell gas from the field commercially. The D-34 field is only the fourth in the KG-D6 block that has received such an approval (the others are D1, D3 and MA). "In oil and gas, the business stops when the drilling stops," says Ganguly, calling the approvals "good news for all of us".Still, no one doubts that Reddy has constructed a big hurdle before RIL's biggest project . "It has all been brought into the open. No one can reverse this or wriggle out of this," says the senior petroleum ministry official quoted earlier.Understandably, Mukesh Ambani is not a happy man. In December, he refused to accompany Prime Minister Singh on a tour of Russia, despite repeated entreaties. Ambani co-chairs the Indo-Russian CEOs' council. Judging by how a new line is being drawn for RIL, it may well be a while before he shares a plane with the prime minister.(An earlier version of this story erroneously mentioned IPCL is 46 per cent owned by Reliance and that Mukesh Ambani is IPCL's chairman. IPCL was fully taken over by the Reliance Group in April 2007. The error is regretted.)
| THE WAY IT WAS{mosimage}RAM NAIK(March 1999-May 2004)During his tenure, IndianOils bid for a 26% stake in IPCL failed. RIL submitted the winning bidSought pricing decontrol for petroleum and petrochemical productsAllowed private players to set up retail stations and sell petrol{mosimage}MURLI DEORA(January 2006-January 2011)During his tenure, RIL was allowed to keep additional area in KG-D6 blockRenewed push for decontrol of petrol and diesel pricesWithdrew gas marketing rights from operators, aiding RIL in case against RNRLPushed for out-of-court settlement of dispute between GAIL and RIL-BG consortiumTHE WAY IT IS{mosimage}S. JAIPAL REDDY(January 2011 - present)Refused to clear RIL's annual budget for development of KG-D6Considering ways to link production with the recovery of costsRefused mid-term price revision of gas from KG-D6Has delayed implementation of the RIL-BP dealRefused commercial certificate for RIL's NEC block in Mahanadi basin Rejected RIL's request for extension of exploration in Cauvery blockRefused to accept RIL's coal-bed methane pricing mechanismOrdered probe into sale of condensate from KG-D6 to RIL's Jamnagar refineryHas not cleared GAIL's outof-court settlement with RIL-BG consortiumThreatened to slap notice on RIL for decline in gas production from KG-D6Transferred bureaucrats said to be close to RIL to other departments |
Ram Naik
Murli Deora
S. Jaipal Reddy
| BT RETRO{mosimage} {mosimage} Some in Reliance Industries believe that Mukesh Ambani's current crop of troubles can be traced to his feud with younger brother Anil over gas from the Krishna Godavari basin - the very same asset that the elder Ambani is having so much trouble over today at the petroleum ministry. In two cover stories dated December 19, 2004 and August 10, 2008, BT chronicled the drama and bitterness, some of which still seems to continue like a bad hangover. |
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When P.M.S. Prasad enters a building, doors tend to open for him. The head of Reliance Industries Ltd's (RIL) oil and gas business certainly is not used to being kept waiting.Unusually, he had to do just that one wintry evening in December last year, when he walked into Petroleum Secretary G.C. Chaturvedi's office in New Delhi's Shastri Bhawan. The secretary's staff asked Prasad to wait in the anteroom along with other hopefuls seeking a meeting. A few minutes later, he was told that a meeting would not be possible since he did not have a prior appointment. Silently, the embarrassed Prasad left.No one could have imagined such a thing happening in the petroleum ministry to a top executive from RIL, India's largest, and arguably, most powerful enterprise.In many ways, the snub epitomises the state of RIL's relations with the Ministry of Petroleum and Natural Gas since S. Jaipal Reddy began helming it in January last year. Several big-ticket RIL proposals are stuck at the petroleum ministry, something that people who follow the company and the ministry say is without precedent.Reddy is perhaps the first minister who has taken on RIL in the post-liberalisation era. The buzz in political circles is that he was sent to the petroleum ministry to remove turbidity in decision making. The day he took over, Reddy told reporters: "I am a new minister in an old government. It would be unfair to expect me to bring in new policy." Strictly speaking, he has not done so. He has simply followed the rulebook - very zealously. Some liken his insistence on following the rules to former prime minister V.P. Singh's resistance of RIL founder Dhirubhai Ambani in the mid-1980s.
The company, instead, has dug in its heels. It sent the petroleum ministry its arbitration notice on the evening of November 24, the same day Chairman Mukesh Ambani met Prime Minister Manmohan Singh and Finance Minister Pranab Mukherjee. In a press release four days later, it said: "Reliance and its partners are entitled under the PSC with the government of India to recover their full costs from the revenues generated… The PSC contains no provision which entitles the GoI (government of India) to restrict the costs recovered by the company by reference to factors such as the level of production or the extent to which field facilities are utilised.""Whether the government or Reliance is at fault is debatable. But the fact is, the country is suffering," says former minister Naik. Aiyar contrasts the arbitration attempt with RIL's claims in 2004, when it announced the gas find. "It would not have come to this if they had lived up to their boasts a few years ago. They were telling the country that we (India) may not have to go around the world looking for gas, as Reliance has found gas in the KG basin," he says.On February 19, Reddy visited the KG-D6 block, becoming the first Union minister to do so. He later reiterated that the ministry would slap a notice on RIL for the decline in gas production.The two sides stand eyeball to eyeball on many other fronts. The DGH has been sitting on several other RIL proposals for a while now. It has not allowed the company extensions for exploration of a block in the Cauvery basin. And it is yet to clear several exploration proposals by RIL, including for the NEC 25 block in the Mahanadi basin, off the coast of Orissa. Geologists believe that the Mahanadi basin has the most potential on India's east coast after the KG basin. Currently, the petroleum ministry is looking into alleged irregularities in the allocation of condensate from the KG-D6 block to RIL's refinery in Jamnagar. The condensate is refined to obtain downstream products, such as petrol. The ministry is also locking horns with the company on the issue of pricing and allocation of gas from its coal bed methane (CBM) blocks in Sohagpur, Madhya Pradesh.The good old daysFor RIL, all this is a far cry from the way things used to be. The history of Reliance's relations with the government is well-chronicled. In the 1980s, news daily The Indian Express published a series of articles by journalist Arun Shourie and chartered accountant S. Gurumurthy on how the company allegedly used its political connections to break the law.One of the stories talked about Reliance importing textile machinery components to increase capacity beyond its licensed limit. In 2002, when the NDA was in power, the company made a successful bid for a 26 per cent stake in state-owned plastics maker IPCL, gaining managerial control. Many had argued that the divestment to RIL would give the company dominance in the market for petrochemical products, especially with duties on imported products as high as 25 per cent. They were overruled by then prime minister Atal Behari Vajpayee and, ironically, Arun Shourie, who had by then become the minister for disinvestment. The minister argued RIL's case passionately in Parliament, saying: "In a village, a cobbler is a monopolist, but you do not want to penalise the cobbler for being the only cobbler in a radius of five miles." IPCL was fully taken over by the Reliance Group in April 2007.In 2003, Reliance Infocomm, an RIL subsidiary (now RCom, an Anil Ambani company), and Tata Teleservices, both fixed-line operators, benefited from a government decision to allow fixedline operators to offer mobile services - giving them entry into a multi-billion dollar business. In 2007, one of the units in RIL's Jamnagar refinery was declared an export oriented unit, allowing it to sell refined crude oil in the global market. It is the only such refinery in the country. In 2010, the Commerce Ministry levied an additional duty of 22 per cent on imported petrochemical products - a decision that was revoked in January 2011, after protests by the Saudi Arabian government.After retiring, several bureaucrats have served and continue to serve on RIL group company boards, while others work as consultants. Former power secretary D.V. Kapoor serves on the RIL board. In 2000, former IPCL CMD K.G. Ramanathan resigned a government post and joined Reliance Power (now an Anil Ambani company) as a director. This was before the IPCL stake divestment and at a time when RIL was looking to build its energy portfolio.Many RIL employees in the energy sector are former government employees from state-owned companies such as ONGC, IndianOil and Bharat Petroleum. Geoscientist Rabi Bastia went on a sabbatical from ONGC in 1996 to join RIL. He is now a Vice President, heading exploration operations at RIL. Bastia is credited with the huge gas find in the D1 field at KG-D6 block, in 2002, as well as RIL's discoveries in the Mahanadi Basin. Incidentally, Ganguly, too, was formerly with ONGC.To be sure, it is standard operating procedure for businesses to cultivate close relationships with bureaucrats and ministers or hire experts from the government or state-owned companies. Such examples abound in groups such as Sterlite, Arcelor Mittal, Essar, Bharti Airtel, Hyundai, and many other companies. But even by those standards, RIL and the Ambanis outshine their peers and have leveraged what analysts call the ability to manage the policy and regulatory environment to their advantage.Notes to accountsMinister Reddy is trying to ensure that there is no repeat of past mistakes by the petroleum ministry. In September 2011, the CAG came down hard on the ministry for allowing RIL to retain the entire 7,645 sq km KG-D6 block in violation of the PSC. Under the terms of the contract, RIL should have relinquished 25 per cent, or more than 1,900 sq km, of the total area outside the discoveries in June 2004 and 2005. This would have allowed DGH to call for fresh bids for the area and potentially earn fresh revenues.But RIL claimed that the entire block was a discovery area and sought to retain it. The claim was studied by the DGH, then headed by V.K. Sibal, and subsequently by a committee headed by Sundareshan, who was then the ministry's additional secretary. Both agreed with RIL's contention and it was allowed to retain the entire area.Today, Sibal is under the lens for allegedly granting undue favours to RIL, including allowing the company to increase expenditure on the KG-D6 field from $2.4 billion to $8.8 billion. Going by precedent, says a retired senior CBI officer, if the evidence leads to RIL, its executives can be booked or, at least, questioned. The CAG report was also critical of government oversight of the project and sought an "in-depth review" of 10 contracts, eight of which were awarded by RIL to the Aker Group on a single-bid basis.The cold war between the two sides has taken a bit of a toll on RIL . Since January 20, 2011, the day Reddy became petroleum minister, shares of the company have shed 16.8 per cent in value compared to a 5.7 per cent erosion in the Bombay Stock Exchange index. (RIL shares were down 37 per cent between January and December 2011, before the current stock market rally.) "The market is observing things very minutely. The major trouble for the company is the more than 40 per cent dip in production at KGD6," says Bhavesh Chauhan, senior analyst at Mumbai brokerage, Angel Broking.RIL's Ganguly says "things are positive" with the ministry "at this point in time". He points to the recent approval of what is called the "declaration of commerciality" and "optimised field development plan" for the D-34 gas field in the KG-D6 block, which will allow the company to sell gas from the field commercially. The D-34 field is only the fourth in the KG-D6 block that has received such an approval (the others are D1, D3 and MA). "In oil and gas, the business stops when the drilling stops," says Ganguly, calling the approvals "good news for all of us".Still, no one doubts that Reddy has constructed a big hurdle before RIL's biggest project . "It has all been brought into the open. No one can reverse this or wriggle out of this," says the senior petroleum ministry official quoted earlier.Understandably, Mukesh Ambani is not a happy man. In December, he refused to accompany Prime Minister Singh on a tour of Russia, despite repeated entreaties. Ambani co-chairs the Indo-Russian CEOs' council. Judging by how a new line is being drawn for RIL, it may well be a while before he shares a plane with the prime minister.(An earlier version of this story erroneously mentioned IPCL is 46 per cent owned by Reliance and that Mukesh Ambani is IPCL's chairman. IPCL was fully taken over by the Reliance Group in April 2007. The error is regretted.)
| THE WAY IT WAS{mosimage}RAM NAIK(March 1999-May 2004)During his tenure, IndianOils bid for a 26% stake in IPCL failed. RIL submitted the winning bidSought pricing decontrol for petroleum and petrochemical productsAllowed private players to set up retail stations and sell petrol{mosimage}MURLI DEORA(January 2006-January 2011)During his tenure, RIL was allowed to keep additional area in KG-D6 blockRenewed push for decontrol of petrol and diesel pricesWithdrew gas marketing rights from operators, aiding RIL in case against RNRLPushed for out-of-court settlement of dispute between GAIL and RIL-BG consortiumTHE WAY IT IS{mosimage}S. JAIPAL REDDY(January 2011 - present)Refused to clear RIL's annual budget for development of KG-D6Considering ways to link production with the recovery of costsRefused mid-term price revision of gas from KG-D6Has delayed implementation of the RIL-BP dealRefused commercial certificate for RIL's NEC block in Mahanadi basin Rejected RIL's request for extension of exploration in Cauvery blockRefused to accept RIL's coal-bed methane pricing mechanismOrdered probe into sale of condensate from KG-D6 to RIL's Jamnagar refineryHas not cleared GAIL's outof-court settlement with RIL-BG consortiumThreatened to slap notice on RIL for decline in gas production from KG-D6Transferred bureaucrats said to be close to RIL to other departments |
Ram Naik
Murli Deora
S. Jaipal Reddy
| BT RETRO{mosimage} {mosimage} Some in Reliance Industries believe that Mukesh Ambani's current crop of troubles can be traced to his feud with younger brother Anil over gas from the Krishna Godavari basin - the very same asset that the elder Ambani is having so much trouble over today at the petroleum ministry. In two cover stories dated December 19, 2004 and August 10, 2008, BT chronicled the drama and bitterness, some of which still seems to continue like a bad hangover. |
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