Stage set for nod to Reliance-BP deal3 min read . Updated: 07 Jul 2011, 09:51 AM IST
Stage set for nod to Reliance-BP deal
Stage set for nod to Reliance-BP deal
New Delhi: The decks have been cleared for formalizing one of India’s biggest foreign direct investment (FDI) deals after the petroleum ministry unconditionally approved the proposal allowing Mukesh Ambani-owned Reliance Industries Ltd (RIL) to offload a 30% stake in its hydrocarbon blocks to London-based BP Plc.
The cabinet committee on economic affairs (CCEA) is slated to take up the proposal next week. BP is to pay $7.2 billion (Rs 32,000 crore today) for a 30% stake in RIL’s 23 oil and gas blocks, including the D6 one in the Krishna-Godavari basin.
“Our ministry has recommended the deal to the CCEA. It will be coming up for CCEA’s approval next Thursday. It will be the single largest FDI," said a top oil ministry functionary, who did not want to be named.
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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. 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% in D6.
While an external spokesperson for RIL didn’t respond to phone calls or to a message left on his cellphone, a BP spokesperson said in an emailed response: “The applications have been submitted to the government of India for approval. We’re awaiting their response in due course."
A total of 23 farmout (sale of equity) applications were submitted to the ministry, one each for the 23 blocks, in March after the deal was announced in February.
This follows after CCEA last week 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.
In response to a question about every deal being referred to CCEA by the ministry for approval, the functionary said: “While the ministry has competence (in taking decisions); it (RIL-BP) is a big-ticket investment... Whenever there is a big-ticket investment, the minister may send it to CCEA. The home ministry has given it a final clearance."
“In case of Cairn-Vedanta deal, we had given two options. In this case, we have given only one option (of clearing it)... In the case of the Cairn-Vedanta deal, it had financial implications for ONGC and the government. This deal has no such implications," the functionary said.
The development comes at a time when output at the offshore block has fallen and the Comptroller and Auditor General of India (CAG) has criticized the oil ministry and regulator Directorate General of Hydrocarbons (DGH) for allegedly allowing RIL to inflate development costs on the D6 block in the KG basin.
“The farmout approval adhering to the terms of the production sharing contract will be a positive development, not just for the transacting parties, but for the upstream investors who were cautiously observing the investment environment in India," said Gokul Chaudhri, partner at audit and consulting firm BMR Advisors.
“E&P (exploration and production) firms evaluate country and business risks and experienced companies factor in the Indian decision-making process before making investment. Notwithstanding, fast decisions are in the interest of country to attract investments," said Deepak Mahurkar, associate director (oil and gas industry practice) at PricewaterhouseCoopers.