CAG report on RIL: Will it taint India's credibility?Sep 08, 2011

CAG report on RIL: Will it taint India's credibility?

Published on Thu, Sep 08, 2011 at 21:16 | Source : CNBC-TV18

Updated at Thu, Sep 08, 2011 at 22:54


The Comptroller and Auditor General's (CAG) final audit report on Reliance Industries (RIL) says Reliance Industries violated the production sharing pact, but the DGH and Petroleum Ministry are equally to blame being ill-equipped to oversee the production sharing contract.

In an interview to CNBC-TV18, Narendra Taneja, South Asia bureau chief of Upstream and SP Tulsian of sptulsian.com, discuss the report.



Below is the edited transcript of the interview. Also watch the accompanying videos.

Q: Former ONGC chairman and managing director RS Sharma says, “ This report is going to be damaging for the oil and gas sector in India . This report is disconnected with the ground realities of E&P business, not just in India, but globally. This report will taint India’s credibility in the E&P space.” Would you go as far as that?

Taneja: After this, who is going to come and invest in this country? Nobody wants to invest in this country. The Government of India then forces Indian companies to bid. That’s how Reliance and ONGC and Indian companies have accumulated large portfolios or E&P blocks in the country.

My question is, ‘Who actually has got expertise?’ My own assessment is that no authority, no corporate, no entity in India has expertise to ask the kind of questions that are being asked. Even Reliance has developed this particular block with the help of international contractors, 90% of the job has been done by foreign companies. So, who has the expertise?

It’s very important for CAG or for that matter any other Government of India body to actually hire some expertise. Then they can ask questions. Otherwise, they are damaging the national interest. And they shouldn’t be doing that.

Q: What does this really mean for stocks like Reliance, Cairn from a market point of view?

Tulsian: This is going to be a big relief for Reliance Industries. I don’t think that market was really expecting such a big U-turn. Earlier there was a lot of fear. In the last month, whole market was struggling with these fears and apprehensions that if any kind of action is initiated by CAG, then obviously it will be having the consequential inquiry maybe by the CBI. In my view, this is going to be a big relief.

If you see the final CAG reports, there are unwarranted or casual statements like they have said that it is common for operators to overstate the cost. Secondly, they have said that DGH should not have allowed the RIL to go for the second phase of KG-D6. So, I think these are all too general statements. I don’t think the market will give any credence to them. The stock is likely to see a big relief from the stock market point of view.

Q: CAG has recommended the government to revise the formula in the production sharing contract, the business of front loading and the capex which has been debated by private operators like Reliance. Where do you stand on that issue?

Taneja: I will take you back to the time when the government of India lunched the new exploration licensing policy (NELP). At that time spirit was we are ready to do anything for you but come and invest in exploration and production activities in India. Reliance and others moved into India with that premise.

Today we want BP, Mobil and Chevron to come to India. Are we working to create the right kind of environment in this country? Otherwise what will happen – if you keep creating this kind of environment, companies like Reliance and Essar will also quit India.

They will go wherever they find more environment friendly for E&P companies. Do you want to foresee Reliance and other companies to leave this country? My only question is we should go to countries like Norway, US, Australia, and understand how the deep water exploration is working.

The best practices and best laws followed there we should try to bring them to India. For that to happen, it is important that DGH becomes an autonomous body. DGH is just a part of the government of India, part of the ministry of Petroleum and Natural Gas. We have to start from A and here we are talking of Z already.

Q: Do you find any merit at all in the suggestions that the CAG has made with regards to tweaking the production sharing contract at least from a future point of view or Narendra and RS Sharma do you also believe it is just going to get really hard to do E&P business in this country?

Tulsian: I agree with Narendra and RS Sharma. In the hindsight we may always feel that about six- seven years have been placed by private operators. Only then we have reached to a level where 100 mmscmd or more gas production can be expected. Here the need is more of the self sufficiency or increase in production.

Currently, our production is at 150 million standard cubic meters per day. If we are able to produce 250 million standard cubic meters per day then that will replace our crude and oil demand. To think of tweaking the production sharing contract (PSC) is a premature and ill-conceived move. Even if there are any losses we should first absorb those and have self sufficiency.