National security may trump investment imperatives

During the January 30 meeting of the Cabinet Committee on Investments, Petroleum Minister M. Veerappa Moily and Defence Minister A.K. Antony agreed to continue disagreeing. In the first meeting of the committee, Antony reiterated the Defence Ministry's national security-related objections, which have halted production at 47 oil and gas blocks off Indian shores. As a consequence, investments worth $13.5 billion are stuck.

Moily's ministry is feeling the heat. Most of the blocks are held either by large companies such as Reliance Industries , BPCL and ONGC, or foreign companies, such as BHP Billiton Petroleum and Santos. Many of the foreign entities are threatening to quit, if the government does not resolve these issues effectively. The stand-off is bad for the government, which is desperately trying to drive growth by attracting foreign investments into key infrastructure sectors, including energy.

Many in the industry had hopes that the newly formed Cabinet Committee on Investments would resolve this long-pending issue. The committee is chaired by Prime Minister Manmohan Singh, who has the authority to overrule even the majority decision. Many hoped the meeting between Antony and Moily would lead to some concrete steps to sort out outstanding issues. But those hopes were dashed.

Though he will be under a lot of pressure, Antony may not relent. Naval security has taken greater importance after the 26/11 attacks and China's increasing activity in the Bay of Bengal, Arabian Sea and Indian Ocean.

For things to move forward, the Defence Ministry will have to relax its firm stance on various issues. Primarily, these are objections by the Navy, which found that many operators had set up rigs and platforms in its practice areas.

BHP Billiton Petroleum had to stop exploration at most of its offshore blocks off the Mumbai coast after the Navy objected to the company carrying out surveys in its practice areas. Parts of Reliance's KG-D6 blocks, off the Andhra Pradesh coast, also fall in the Navy's no-go areas. In all there are 14 blocks across India's coastline that have been marked as no-go areas.

For now, Moily and the exploration industry will have to wait.