The ongoing dispute between the Ministry for Petroleum & Natural Gas and the country’s largest gas field’s operator, Reliance Industries Ltd (RIL), is like a game of ping-pong. The game is fast and demands quick reaction.
And who would know it better than S. Jaipal Reddy, who according to corridor gossip, was forced to shed his portfolio for not taking quick decisions, which had a negative impact on the country’s hydrocarbons business. But, to be fair to Reddy, he was just following his predecessor.
That makes the job of his successor M. Veerappa Moily even harder. He will not only have to take decisions fast but not also appear to be seen as acting under corporate influence.
At stake are billions of dollars and time plays a crucial role in exploration and production activities. Weather windows for offshore activities are very restricted, so the sector demands quick decisions.
Despite having a fool- proof mechanism in place – block management committees having nominees of Government, Directorate General of Hydrocarbons, and contractors to review and approve the budget for undertaking exploration and production activities as well as to increase output – the experience of upstream companies including Cairn India reflect a different picture. Delays push back investment plans and as well as proposals to increase output.
A recent PWC report shows that rising energy import dependence has crippled India’s economy. Oil imports in 2011-12 accounted for almost 50 per cent of the country’s total imports.
About 54 per cent of the country’s trade deficit was due to the oil trade deficit. This fuelled the substantial weakening of the rupee and resulted in a drawdown of foreign exchange to the tune of $12.8 billion.
The country boasts of having one of the best production sharing contracts (PSCs) for its auction rounds – as it had one of the last mover advantage – based on the PSCs of experienced nations.
The issue is implementation.
There have been instances where a private contractor has been arm-twisted into accepting things which has not been part of PSC. But, then the argument is natural resources are national property. In case of Reliance and D6 block, the operator has commenced pre-development activities in the D6 block which includes Engineering Surveys – Geophysical Surveys & Geotechnical Investigations and Conceptual Engineering and FEED.
Though the management committee seems to be in agreement with the company’s proposal for further investments to increase output, the final nod is still awaited. Though globally also approvals can be delayed, but the operators are allowed to go ahead with development plans. Differences can be always sorted out in varied dispute redressal forums.
The reason for delay has been difference between RIL and the Government over the second round of auditing by the CAG.
However, now it seems the two are in a reconciliatory mode and RIL has agreed for an audit under Section 1.9 of the Accounting procedure of the PSC and to cooperate with such audit subject to conditions.
A question that had come up is whether CAG will be doing only financial audit or performance audit as well. For doing performance audit, CAG may not be equipped. Thus, the need to make the offices of DGH fully equipped to undertake technical audits.
In fact, even the expenditure incurred on any approved activity costs for the block is audited at three levels – once by corporate, then by DGH, and finally by the Government. If there is a difference of opinion, the cost incurred for the activity can always be held back till the operator has been able to clarify it to the satisfaction of the PSC.