Ambani ruling is bad news for free gas pricing

Vol 13, PW 24 (20 May 10) People & Policy

Private sector explorers operating in India are in a state of panic following the Supreme Court’s decision to uphold the government’s right to dictate gas pricing and marketing.

In its 268-page ruling on May 7, the Supreme Court rejected a plea by Anil Ambani for 28m cm/d at $2.34/mmbtu and ordered him to re-negotiate a new agreement with brother Mukesh within six weeks. At first this directive would appear to favour Mukesh, but only partly.

“Reliance has lost the freedom to sell and price its D6 gas,” complains one observer. “This is nothing less than backdoor nationalisation of the exploration sector.

It makes a mockery of NELP contracts!” Read the Supreme Court order to understand why. “The power of the Government under the PSC is broad and includes the power to regulate the price and distribution of gas,” reads one passage.

“Thus, keeping the objectives of the PSC in mind it would not be possible to restrict the power of the government.” Read further and judges stress the government, not Reliance, holds the power to dictate to whom gas can be sold - and at what price.

“Though the contractor (Reliance Industries) has marketing freedom to sell the product from the contract area to other customers,” adds the ruling, “this freedom is not absolute.” One angry observer wonders why the Indian government bothers to invite private explorers into the oil sector.

“Companies who want to invest in India’s upstream sector will now have to be content as contractors to the government,” adds another observer. Under such a paternalistic policy, he believes, no global major or foreign upstream company will show interest in India.

“Companies like Shell, BP or Eni are not contractors,” we hear. “They produce, own and sell oil and gas.

This (ownership of oil and gas) is reflected on their balance sheets. That’s how they’ve become majors.