Battle Royal – Reliance Vs. Oil Ministry – Gas dispute

2011-09 of 18 May, 2011   Click here for PDF Download

The difference between a government and private enterprise is that the former looks for the “votes” whereas latter goes for “notes.”


The Ministry of Petroleum & Natural Gas (Let us say, Oil Ministry) being a section of the government obviously go for the votes. Inflation is rising, GDP is rising, interest rate is rising, budget deficit is rising, subsidies are rising, oil prices and petrol pump prices are rising, but the gas output of Reliance Industries Ltd. major off shore facility in KG Basin is falling.

Reliance Industries Ltd. who owns the licensed facility in Krishna-Godavri Basin is dilly dallying in raising the production. Reason – final product price Gas Prices are not allowed to rise by the government. RIL who opened hundreds of pumps a few years ago shut them down without any ceremony because it could not sell the petrol at subsidized rates and lose money. Same thing is happening in gas produced at KG Basin. Reliance being a public listed company loyal to shareholders and their purses, looks for notes (Rupee) because it can not sell more and more gas at less and less prices.

Reliance is telling the oil ministry – look you want votes, so you are subsidizing but we are not in business of getting votes. We need hard currency notes when we produce and sell the gas from KG Basin. This is why we obtained the license from you and found the huge gas reserve spending thousands of crores of rupees. We are answerable to our shareholders, and look at our stock price which is not rising for over two years in a row. Only due to your policy of containment of the gas prices.

Government of India is taking the matter seriously. It wants to keep the inflation in control, and since it can not control the overseas oil prices and does not want to let the Rupee appreciate either to blunt the effect of the inflation, it has picked up cudgel with the Reliance to up lift the gas production. If gas is produced more domestically, it could cost less, and it could be sold cheaper to the common people by not raising the prices, and also save on extra budget deficits.

However, RIL is not ONGC or Oil Marketing Companies like ONGC, IOC, BPCL, HPCL or MRPL who shoulder part of subsidy by themselves and also ask the government 10 times before raising prices. RIL means business, and just as it shutter down all petrol pump due to its inability to pass on the extra costs to the consumers under prohibitive price control, it would shut down the Gas Platform or rigs or wells in KG Basin if it can not raise the price in conformity with the market prices.

Now, the Government says – Do it and RIL says it can’t (= won’t). It plays up the technical and feasibility studies in its defense and says that drilling more wells will not be technically feasible. If that was so, why did British Petroleum agree to pay US$ 9 billions only two months back to take stake in those very ventures RIL says are not profitable or technically not feasible?

What RIL is telling the Government that – Look, We are not ONGC or IOC. You allow us to raise the gas prices, we will drill more. If you say No, then we may not say “No” but we can say “We can’t”. After all you are a government, and like King, the government “Does No Wrong”.

The government is in fix. They can armtwist Anil Agarwal or some other telco company, but here they are fighting a muted war with Mukesh Ambani of RIL who lives in US$ 1 Billion bungalow, and where he has spent more money in guest toilet than what Government spent on whole floor or block on the parliament street housing the Petroleum and Gas Ministry (oil ministry).

What could happen if both sides remain adamant. Would the ministry cancel the license or permission to extract the gas in the name of protecting or efficiently utilizing the national resources in best national interest and force “RIL to do it or abandon it”

RIL, if government orders it as above, would go to the Supreme Court and assert the right to dictate the free market prices under the law and in order to protect the best interests of its shareholders. The Supreme Court will be in dilemma and will have to chose lesser devil. If RIL succeeds in imposing free market prices, almost all State Owned Refineries such as ONGC, MRPL, IOC, BPCL and HPCL too will benefit.

So it is a battle royal. It will be a important battle reminiscent of Napoleon or Sikander. This will make it interesting to watch.

Kalidas (Anil Selarka)

Ref: 2011-09 of 2011-05-18

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