Sundareshan calms fears about NELP terms

Vol 14, PW 9 (21 Oct 10) People & Policy

Who can blame oil secretary S.

Sundareshan for his irritation at questions about the government’s decision to withdraw the seven-year tax holiday for NELP gas production, or fears it has assumed control of gas pricing and allocation. This was not a controversy of his making, yet Sundareshan’s attempts to gloss over industry concern with a simple, “these problems have been resolved”, didn’t convince anyone at the NELP-IX roadshow in Mumbai on October 18.

Most astonishing was his assertion that, “the government did not fix the D6 gas price,” and that “marketing freedom has been upheld by the Supreme Court so all operators have the freedom to set the price of gas through a ‘price discovery exercise’.” Tell that to Reliance, which diligently carried out a ‘price discovery exercise’ among 10 fertiliser and power companies in May 2007 (a month after Sundareshan was appointed additional oil secretary) resulting in a landfall price of $4.33/mmbtu.

Four months later (September 23) a cabinet panel led by finance minister Pranab Mukherjee overturned this, saying it should be $4.20/mmbtu, and fixed for five years. Worse, ministers decreed that the government – not Reliance - would henceforth decide who gets D6 gas, setting a worrying precedent.

Admittedly the Supreme Court ruling in the celebrated Mukesh-Anil case, to which Sundareshan alluded, and which endorsed marketing freedom for gas, came after the government’s decision to fix the D6 gas price, but the precedent was already set. If the government could do this to Reliance, argue investors, what hope for lesser mortals Still, Sundareshan was clear on the government’s decision to scrap the seven-year tax holiday for gas produced from NELP-I to NELP-VII blocks, admitting the decision is in legal limbo, with several cases being contested.

He could have just said, ‘our acreage is good, but hey, our lawyers are even better!’