All's well that ends well
Too many cooks can spoil the broth. However, that did not happen early this week when an Empowered Group of Ministers (EGOM), a short Cabinet, decided the profitability of a $6-billion investment in the oil and gas exploration business of Reliance Industries (RIL). It approved a gas sale price of $4.2 per MMBTU (million British thermal units), a shade less than what RIL sought—$4.33 per MMBTU.
And, RIL, if anything, is not complaining, for the decision did not succumb to the strong forces of ‘administered pricing’ sought by the power and fertiliser ministers over the last two months. If implemented, such a regime would have meant shaving off RIL’s asking price by as much as 40-50 per cent.
The EGOM’S decision to enforce a single gas price for all the sectors of the economy also lends ‘commercial’ certainty to the 162 contracts currently operational in the oil and gas exploration business. For future contracts, the EGOM has recommended an overhaul of the existing production sharing contract, which is poorly drafted—the very reason why it is susceptible to interpretations leaning towards populist measures. This exercise could well delay the next offering of blocks, slated at the end of the year.
The EGOM, however, could not entirely shrug off the legacy of the existing contract document. It is proposing a gas marketing policy that will broadly define the allocation of gas to the various sectors of the economy.
However, officials point out that it is likely to be advisory in nature as any attempt to tie down a producer to a consumer base would impinge on its freedom to market gas, a key aspect of the contract.
The issue is expected to be resolved in the next meeting of the EGOM, a date for which hadn’t been fixed when BT went to press. The question before the EGOM will be: if a gas marketer strays from the policy, can the government intervene? This does lend a tinge of uncertainty to the fate of the existing as well as future contracts.
RIL’s gas from the D6 Block in the Krishna-Godavari basin, however, is unlikely to suffer on this count—it might present itself as a fait accompli or provide a basis for the marketing policy, officials argue.
RIL’s price is officially credited to Finance Minister P. Chidambaram and Economic Advisory Council chairman C. Rangarajan, when the EGOM met earlier this month, the ‘surgery procedure’ was mooted by petroleum ministry way back in early June, when RIL presented its proposal.
At that point of time, Petroleum Minister Murli Deora, who was within his rights to decide on the pricing, however, chose to deflect the issue to Cabinet Secretary K.M. Chandrasekhar. The minister then chose to deflect the issue once again, this time to the EGOM, thus explaining the two month delay in the final approval. Interestingly, the EGOM’s decision on RIL’s price formulation negates the view held by Anil Ambani that RIL’s formula must not be approved since it does not offer the bidders any leeway to offer different prices—a key requirement of the contract.
But this may be another instance where big brother Mukesh has won.
