New Delhi/Mumbai: The cabinet committee on economic affairs (CCEA) cleared one of India’s biggest foreign direct investment deals on Friday, allowing Mukesh Ambani-owned Reliance Industries Ltd (RIL) to offload a 30% stake in its hydrocarbon blocks to London-based BP Plc.
While, according to the original contours of the deal, BP is to pay $7.2 billion (Rs 31,970 crore) for a 30% stake in RIL’s 23 oil and gas blocks, including the D6 one in the Krishna-Godavari (KG) basin, CCEA gave its approval for 21 of those blocks. Approval has not been granted in two blocks due to technical reasons.
“CCEA today approved transfer of 30% participating interest of Reliance Industries Ltd to BP Exploration (Alpha),” S. Jaipal Reddy, India’s petroleum minister, told reporters. “We will give the approval formally after the parent company gives financial guarantee... We are enforcing all provisions of the PSC (production-sharing contract).”
The government wants bank and performance guarantee from BP.
“As for the two other blocks, we have taken permission from CCEA to deal with them accordingly,” added Reddy.
An external spokesperson for RIL declined to comment.
In an emailed statement, Bob Dudley, BP Group chief executive, said: “We welcome the Indian government’s approval for our alliance with Reliance Industries, partnering with India in its quest for energy security. This transaction is part of BP’s strategy of creating long-term value through alliances with strong national partners, taking material positions in significant hydrocarbon basins, and increasing our exposure to growing energy markets. We will now work to complete the commercial agreements for the deal in the next few weeks.”
While the deal will help BP expand its global footprint, it will give RIL access to better technology and that will help it realize better value from its hydrocarbon assets. The deal values RIL’s 23 oil and gas blocks at $24 billion.
“It will not only bring $7.2 billion investment, but will also lead to the induction of vast technical expertise in India’s hydrocarbon sector,” said Reddy.
As part of the deal, which has been in the making for the last five years, RIL and BP will also form an equal joint venture for “sourcing and marketing gas in India”, which will also have the necessary infrastructure. Mint had reported on 7 February that BP was in talks with RIL to buy 30-45% of D6.
The development comes at a time when output at the offshore block has fallen and the Comptroller and Auditor General of India has criticized the oil ministry and regulator Directorate General of Hydrocarbons for allegedly allowing RIL to inflate development costs on the D6 block in the KG basin.
CCEA earlier this month approved Vedanta Resources Plc’s proposed acquisition of a majority stake in Cairn India Ltd, with riders to protect the interests of Cairn’s state-owned partner, Oil and Natural Gas Corp. Ltd, after a 10-month deadlock over the deal. However, a formal communication is yet to be issued by the petroleum ministry.
“In the next few days, the decision will be formally communicated. The law ministry is vetting it,” Reddy said.
In a separate development, India is trying to resolve the impasse over the method of settlement for bilateral oil trade with Iran and also making alternative arrangements to tide over any supply disruptions. The government has been unable to resolve the vexed issue after India decided to discontinue payment through the 35-year-old Asian Clearing Union system.
“While we are making every possible effort to make payment to Iran, we are also making alternative supply arrangements,” Reddy said. “Our search is not only confined to the Gulf countries, but other parts of the world as well.”
India imports around 400,000 barrels per day of crude oil from Iran, which amounts to around 12% of total imports. Outstanding payments are around $9 billion.
In response to a question about Iran threatening to stop exports to India, Reddy said: “We have not received a formal letter, but they (Iranians) are feeling desperate.”
In another development, the government plans to take the politically sensitive decision to cap the number of domestic liquefied petroleum gas cylinders per customer as suggested by a task force created to implement a radical overhaul of the present subsidy regime.
“It (a meeting of an empowered group of ministers on pricing of petroleum products) will be scheduled as quickly as possible,” Reddy said.
Arun Kejriwal, director of Kejriwal Research and Investment Services Pvt. Ltd, said: “It is good news for the company as well as the country. BP knows their business and their expertise in deepwater drilling will help the company.”
S.P. Tulsian, a Mumbai-based independent stock market analyst, said: “RIL’s stock price should gain at least Rs 25 per share when trade opens on Monday, owing to the news of the deal getting approval.”