RIL, Cairn proof govt is yet to get its act together
Given how oil imports have risen from $39 billion in Q1FY13 to $42 billion in Q1FY14, you would think the government would be keen to clear as many oil/gas projects that are held up—indeed, that is part of the process to convince investors India is keen to restart the stalled investment process, the R1.83 lakh crore of stalled projects ‘cleared’ by the Cabinet Committee on Investments earlier this week is evidence of this. But, as FE’s lead story today shows, the process is far from working, the latest evidence being the Directorate General of Hydrocarbons (DGH) all but asking Reliance Industries Ltd (RIL) to walk out of its NEC-25 gas blocks off the coast of Orissa. The overall gas story, though, is a lot more complex than the DGH first insisting RIL do a particular test to prove the gas was there and then, when RIL agreed a year later, saying that its exploration-time had run out. What is more worrying about the RIL gas saga is that it never seems to end. While the original production sharing contract (PSC) allows free-market pricing, the government arrogated this right to itself during the fight between the Ambani brothers. When the Rangarajan committee sought to bring back market pricing in a phased manner, the finance ministry said RIL should be told to make good its ‘loss’ in production at the old price before getting the Rangarajan price. While there is little in the PSC that allows penalising of a firm for not delivering on targets, the matter is under arbitration anyway since the Solicitor General had opined some part of RIL’s capex cost recovery should be held back till it delivered on its targets. Presumably the matter was settled when petroleum minister Veerappa Moily turned down the finance ministry’s suggestion. But now, as The Indian Express reported on Tuesday, a Cabinet note has been prepared to decide on whether RIL should get the new price or not—why the oil ministry never hired a consultant all these years to examine the data from the gas wells to ascertain whether RIL was hoarding gas is not clear, given this is the basis for all the confusion.
If this isn’t bad enough, Cairn India’s proposals for faster clearances of its Rajasthan oil blocks continue to hang fire, never mind that they will lower the annual import bill by over $8 billion a year at today’s exchange rate and add R30,000 crore each year to government revenues. Given over 80% of oil generated goes to the central and Rajasthan governments and ONGC, all Cairn wants is to get one block clearance instead of going back for each permission and it wants the government to do away with the artificial distinction between just 8 years for exploration and 17 years for development during the 25-year mining lease—let the company explore areas it wants to even after the stipulated time for exploration is over since the overall lease period is fixed anyway. This is important since, while getting new data from different wells, and with improvements in technology, going back to older areas may just yield results. Both relatively simple decisions, you’d think, but they’ve been held up so long, Cairn has now asked the CCI for help—around $1 billion of its cost recovery bills are also pending for a long time. Given this, it’s difficult to see how investors are going to regain faith in India.