Gas Price and Modi Sarkar

NDA Government’s recent decision to revise gas price from $4.2/MMBTU to $ 5.61/MMBTU,effective from 1st November,2014 has surprised many. The increase in gas price by $ 1.4 /MMBTU as against the decision of earlier UPA government to increase it to $8.4/MMBTU will certainly convince many that Modi Sarkar Mukesh Ambani Ki Dukan Nanhi hain .It will also give NDA considerable political mileage.

We examined the issue critically and our analysis indicate that it is a very clever move to silent the critics and also to look after RIL interests. As per our experience, Reliance is normally favored only by such moves. Initially a public perception is created through some pseudo moves that the Government decisions are in public interest and anti Reliance. After sometime, Reliance is given more than its expectations. 

Our view is that the present increase in Gas price is not meant for Reliance. The increase is for production from existing fields. Any increase does not bother Reliance as there is hardly any gas production from KGD6, barely 7 to 8 MMSCD.

According to media reports, RIL is trying for deep water exploration wells in Mining Lease areas in KG blocks. The PSCs do not permit this. In this regard,  a Cabinet Note was also prepared in March, 2014 under UPA government but the same could not be cleared due to Code of Conduct for Lok Sabha elections. The possibility of this approval by the NDA Government cannot be ruled out. After all, the core planning is of Reliance. Government is just to OK it.  Once cabinet approval is done in the national interest—to produce more gas indigenously, RIL will have a big Cake. Another price will be announced, much higher, to justify higher cost of production of Deep water drilling. Who can have the objection? What is the Catch?

We have no issue with Deep Water drilling but do have a serious concern, if Cabinet Approval is given to RIL/BP/NIKO consortium as extension of the existing contract.

In this regard, Extract from the Draft Cabinet Note is reproduced below:

 “Article 21.5.12 of the PSC states that “In the event of the Contractor does not commence the development of such discovery within 10 years of the date of the first Discovery well, the Contractor shall relinquish its right to develop such Discovery and the areas relating to such discovery shall be excluded from the Contract Area.  The first discovery in the block was made on 29.10.2002 therefore the ten year period has expired on 29.10.2012”.

RIL press release dated 24^th May, 2013 indicates huge reserves of Gas in deep water at 5000 meters. This test drilling was carried out by RIL-BP in early March’2013 after the government permitted companies to drill exploration wells in areas where exploration period had long expired.

The basic issue arises,” Why Government allowed the consortium to test drill in an area which no longer belonged to them and then prepared a Cabinet note to give a go ahead signal.

We welcome new discoveries and development in Oil and Gas Exploration. However, permitting Reliance under the existing contract should not be allowed. The contract should be awarded on the basis of fresh International bidding so that the nation gets its due share.

We would like the Government to clarify its position on:

Q1. Is Government considering Deep Water  exploration drilling in  Mining Lease areas of Krishna Godavari Basin to increase Gas Production?

Q 2 Do the PSC provisions permit such exploration drilling 10 years after first discovery as extension of contract to the existing contractor?

 Q.3 In case Deep Water drilling is envisaged in ML areas will it be carried out by the existing consortium of RIL/BP/Niko or will there be fresh International bidding?