More then four months after UK's BP Plc agreed to buy a 30 per cent stake in Reliance Industries' (RIL) oil and gas blocks, the
oil ministry has referred
the $7.2-billion deal to the Cabinet Committee on Economic Affairs (CCEA) for approval.
Although the oil ministry has the authority to decide on RIL selling 30 per cent interest to BP (earlier British Petroleum) in 23 exploration blocks, including the prized eastern offshore KG-D6 gas fields, the ministry on Tuesday decided to refer the deal to the CCEA, sources privy to the development said.
The $7.2-billion deal is the single-largest
foreign direct investment (FDI) in the country and RIL had on February 25
made a formal application to the oil ministry for approval of the transfer of stake to Europe's second biggest oil company.
Sources said the decision to refer the deal to CCEA, which is likely to delay approval for the deal, came more than a month after the Ministry of Home Affairs
gave security clearance to the BP stake acquisition.
Presently, 100 per cent is permitted in the oil and gas exploration and production (E&P) sector under the automatic route (without going through the Foreign Investment Promotion Board or CCEA).
ANALYSIS: What the BP deal means for Mukesh's Reliance Sources said while security agencies' no-objection certificate for the Reliance-BP deal was unconditional, the home ministry's one-page note had flagged a couple of issues.
The ministry had wanted to know if the New Exploration Licencing Policy (NELP), under which RIL won blocks like KG-D6, provided for the sale of interest and if BP could take oil and gas produced from the area outside the country, as per the extant rules.
NELP provides for the farm-out of interest and several firms have done so in the past, including Cairn India, which sold 90 per cent stake in the KG-DWN-98/2 block adjacent to the KG-D6 fields to Oil and Natural Gas Corp (ONGC) in 2005, sources said, adding that export of oil is not permitted under Indian law.
For natural gas, operators like RIL don't have marketing freedom and it is the government which fixes not just the price and quantity, but also the buyers of the fuel.
With such stringent laws, it is not possible for BP to take oil and gas produced from Reliance blocks outside, they said.
The home ministry had also asked if RIL could not have offered the stake to state-owned gas utility GAIL India or any other PSU. But none of the state firms, least of all gas trading firm GAIL, has the deep-sea technology that RIL is looking for to develop difficult-to-exploit hydrocarbon reserves.
Also, the home ministry assertion that the Reliance-BP gas trading venture would erode GAIL's share, ran against the government policy of inviting private sector competition and is contrary to the spirit of a free market economy, sources said.
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