Will Ambani case hit Deora sales pitch?

Will Ambani case hit Deora sales pitch?
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First Published: Sun, Aug 09 2009. 11 32 PM IST

 Long road: Petroleum minister Murli Deora. Subhav Shukla / PTI
Long road: Petroleum minister Murli Deora. Subhav Shukla / PTI
Updated: Sun, Aug 09 2009. 11 32 PM IST
Mumbai: The petroleum ministry has a challenging task ahead as it pitches new blocks for hydrocarbon exploration to global investors while vigorously defending the government’s rights to regulate price, quantity and buyers of natural gas in a high-decibel lawsuit being fought at the country’s apex court.
Long road: Petroleum minister Murli Deora. Subhav Shukla / PTI
Global oil and gas companies will carefully screen what the ministry tells them in the roadshows about India’s enabling environment, its exploration and production (E&P) prospects as well as what it does in the ongoing gas dispute between firms owned by the estranged Ambani brothers, sector experts said.
Petroleum minister Murli Deora started the roadshow on Saturday in Mumbai for the auction of 80 blocks under the eighth round of the new exploration licensing policy (Nelp-8) and the fourth round of coal-bed methane (CBM-IV), inviting companies to explore for oil, gas and coal-bed methane reserves in India. Some of these, including the 18 blocks around the Andaman and Nicobar Islands, are in waters where little or no exploration has been carried out so far.
“Of course, there will be an overhang of the gas dispute for the investors,” said a Mumbai-based analyst of a domestic brokerage. “He (Deora) isn’t expecting aggressive bidding at all.”
Another analyst from a Mumbai-based arm of a foreign brokerage called it “an interesting situation” where “two stories are happening simultaneously”—one in which the ministry has to assert the government’s sovereign claims and another in which it has to come across as a facilitator of a liberal E&P regime. None of the analysts was willing to be named considering the sensitivity of the issue.
After Mumbai, roadshows will be held in Houston, Calgary, London, Perth and Brisbane over the next six weeks for the largest-ever auction of blocks aiming for a $3-4 billion (Rs14,370-19,160 crore) investment. A critical incentive for the winning bidders is tax relief for seven years.
The ministry is confident that the gas dispute between the Ambani-owned firms will have no impact on the auctions. Junior oil minister Jitin Prasada said it was too early to judge and the government will get to know the level of interest and participation only after the bids have been placed.
Petroleum secretary R.S. Pandey was more direct. “There will be no effect because of this (dispute). I don’t see any adverse effect on the bidding rounds,” he said on Saturday.
Pandey denied reports that the government was tinkering with the policy for gas price fixation and marketing proposed in Nelp since its launch in 1999, saying the contract provides for government approving the price formula in accordance with its utilization policy.
“There is no change in policy. We are proposing no modification... Don’t believe in misinformation being spread,” he said, referring to recent media reports that Nelp-8 could introduce clauses to pre-empt another lawsuit scenario.
The D6 block in the Krishna-Godavari (KG) basin off India’s east coast was awarded to the Mukesh Ambani-controlled Reliance Industries Ltd (RIL) in 1999 as part of the first Nelp round. It is now the epicentre of a pitted three-year-old corporate lawsuit. The Anil Ambani-owned Reliance Natural Resources Ltd (RNRL) is demanding 28 million standard cu. m a day (mscmd) of gas for 17 years at $2.34 per million British thermal unit from RIL—44% cheaper than the government’s floor price for the gas—quoting a 2005 family pact. RIL has held that as a contractor, it can sell gas only after the government’s approval, a stance seconded by the ministry.
The ministry has called the gas from the KG basin a national asset and decided to defend its rights in the Supreme Court where the RIL-RNRL dispute will be heard on 1 September.
Last Monday, Deora told Parliament: “We have nothing to do between the private dispute of two industries or two industrialists. However, we have everything to do with protecting the interest of the government and the public interest; this is our constitutional and legal obligation.” He had also said the ministry will do all it can to “protect the government’s legal rights to regulate the utilization of gas and its allocation”.
On Saturday, at the Mumbai roadshow, Deora said that under Nelp, the government “invited foreign investment and technology with open arms to attain the goal of self-sufficiency in hydrocarbon sector”.
The litmus test for the ministry will be to auction these new blocks as the global investors watch both sides of this unfolding story. And there could be a spin in this story, to the government’s advantage, pointed out the analyst from a foreign brokerage quoted before. “The ministry could always turn the argument to show how it sticks up for its contractors in case of a problem and may come out looking like their steady partner,” he said. Although gas pricing and utilization policy came in after RIL won the block, catching the company unawares, it gave RIL “anchor customers”. “It de-risks the entire business and makes financing easier if buyers are lined up,” he said.
Under Nelp, 71 oil and gas discoveries have been made in 21 exploration blocks with in-place hydrocarbon reserves of at least 600 million tonnes of crude oil equivalent, Deora said in Mumbai. Total committed investment in the Nelp rounds for exploration so far is around $10 billion, of which $5.3 billion has been incurred. Another $6.6 billion is expected to be invested in the future. The last date for submission of bids is 12 October.
PTI contributed to this story.
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First Published: Sun, Aug 09 2009. 11 32 PM IST