NEW DELHI: Even as the government hardens its stand against Reliance Industries Ltd (RIL) over allocation of costs and sharing of profit from the D6 fields of the Krishna-Godavari (KG) basin that the company operates, the petroleum ministry has sought to correct an error in the minutes of a ministerial meeting that could have indirectly cost the government around $8 billion (around Rs.40,900 crore today) over two years and benefited the company to the same extent.
In a letter dated 7 March to cabinet secretary Ajit Seth, and referring to a meeting of the ministerial panel held on 24 February, petroleum secretary G.C. Chaturvedi wrote about what he termed a “major discrepancy” between the minutes and what had actually transpired at the meeting.
The ministerial group was considering RIL’s request to increase prices that had been fixed in 2009 for a period of five years, from a basic cost of $4.2 per million British thermal units (mmBtu) to $14.2 per mmBtu.
Mint has reviewed a copy of the letter to Seth and the legal note the oil ministry sent to the law ministry, explaining the financial implications of the price rise.
One government official familiar with the matter downplayed the exchange and said the error was an “inadvertent” one. A senior official at the petroleum ministry, too, dismissed it as “not a major thing”. Neither wanted to be identified.
However, a second government official, who also spoke on condition of anonymity, said: “Had there been no correction of the discrepancy”, the petroleum ministry’s stand on the gas price issue could have been interpreted as an approval of revisiting the gas-pricing agreement.
According to Chaturvedi’s letter, the correct version of the minutes should have said that his ministry “pointed out that price was approved for a period of five years to be effective from 2009, after following the due process, and is effective till 2014. Minister (petroleum and natural gas) further pointed out that the contractors had asked for revised prices in 2010 itself, when international prices were comparatively lower. That request was turned down as the contractor had consented to terms and conditions of price approval, which included five-year period during which the price approved was valid.”
Instead, the version circulated by the cabinet secretariat said the ministerial panel “further noted that the gas prices fixed in 2009 were valid for a period of five years, and on this ground, the request of the contractor for revised prices was turned down in 2010 itself, when international prices were comparatively lower.”
While the difference appears marginal, the second government official explains that it could have been misinterpreted.
Indeed, Chaturvedi’s letter to Seth said: “The logic brought out during the eGoM (empowered group of ministers) meeting has been lost in the minutes communicated by the cabinet secretariat, which doesn’t reflect the factual position.”
The ministerial group is headed by finance minister Pranab Mukherjee.
A spokesperson for RIL declined comment on the basis that the company cannot be expected to be privy to communication between two government departments.
After RIL sought an increase in the price, the petroleum ministry asked attorney general Goolam E. Vahanvati’s opinion on the issue.
While referring the issue, the oil ministry’s legal note said that it strongly believes “that there is neither legal justification nor financial justification to revise gas price at this juncture. Huge financial implications of any such upward revision will hit at the fiscal balance of the Union of India and needs to be avoided”.
Many of the consumers of gas are fertilizer manufacturers or power generators that are either owned or subsidized by the state, or which sell to government-owned companies.
RIL is also engaged in a dispute with the government over the denial of $1.24 billion in costs claimed by the company on the development of the KG D6 field.
Production from the field has fallen below estimates and the petroleum ministry’s position is that the company cannot claim costs that run ahead of production.
Mint reported on 30 March that the government has been advised by solicitor general Rohinton F. Nariman to decline the company’s offer of arbitration to settle the dispute.
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