Three key issues and the rift between Reliance Industries and the Centre

Within less than a year, there have been three occasions when the government of India and the country's most valued firm by market capitalisation have been at odds

It was a significant occasion for Reliance Industries’ chairman Mukesh Ambani to have met Prime Minister Narendra Modi along with India’s top industrialists for a pre-budget meeting this week.

Within less than a year, there have been three occasions when the government of India and Reliance Industries have been at odds. So many of them at such a short time period between any Indian government and the country’s largest private sector company is itself quite strange. The sectors where they are facing off are oil & gas, a pending tax case, and telecom. The dispute over the oil & gas field dates back to 2010, the tax case emerged in 2011 and the spat over telecom began in 2019.

On December 21 of 2019, joint venture partners Reliance Industries and British Gas Exploration & Production handed over a 25-year-old oil and gas field, Panna-Mukta, back to the Government of India. The fields had run dry. The problem is that there is an arbitration case about pending dues on the field, which began in 2010.  

So, on the same day of the handover, the petroleum ministry moved an application in the Delhi High Court asking for the recovery of its dues. As a government source explained, taking the field back without putting in the objections could be interpreted adversely by the UK-based arbitration tribunal.

The sum is no chicken feed. The government claims it should get $4.5 billion or about Rs 30,000 crore from the three operators, including ONGC. The dispute is about the costs the companies were entitled to recover under the Production Sharing Contracts for this and the Tapti field. This is what the arbitrators are trying to sort through. ONGC was advised as early as in 2011 not to join the arbitration initiated by RIL and BG. So it has stayed on the sidelines.

Within days of the government moving the High Court in December, RIL has filed a counter affidavit saying any estimate on the dues was premature, as the arbitration tribunal is still deciding on the principles of the case. By its estimate “the Quantification Phase of the Arbitration” is at least a year off. The government however notes that RIL has announced a plan to sell a 20 per cent of its stake to Saudi Aramco, in August this year. Once the deal is done, there will be no space to carve out its dues, the government feels.

Both the parties have a strong case. What surprised observers was the alacrity with which the government filed the affidavit in the Delhi High Court against India’s largest company by market capitalisation. The Indian government has often been accused of being lackadaisical in protecting its commercial interests. The language used by the RIL affidavit to rebut the government claim was also noted. There was no response from RIL to queries from Business Standard on this.  

Remember, the first partial award in this case from the UK-based arbitration tribunal came in October 2016 against RIL and BG. The latter challenged a segment of the award before an English court (since the arbitration was in UK). The court basically directed the Tribunal to reconsider 2016 award. The next partial award in December 2018 went in favour of BG-RIL. It is now the turn of the Indian government to contest the award, which it has done. The Delhi High Court affidavit was over and above these contestations.  

The other issue where the government is at loggerheads with RIL is a more complicated case of tax dues. It has also come up in several media reports. The case flared up again in 2019 after the Fiscal Intelligence and Investigation Service & Economic Investigation Service (FIOD-ECD) of Netherlands hauled up three former employees of a Dutch pipeline firm for their alleged involvement in a scheme to over-invoice costs that involved an RIL company. As a Business Standard report pointed out, India’s Enforcement Directorate subsequently sought the investigation report from FIOD-ECD. RIL has always denied all the charges.

The same report noted that ED had received the money-laundering alert when the Dutch investigation agency approached it for certain information. The employees of the pipeline firm were suspected of laundering $1.2 billion to East West Pipeline Ltd, earlier known as Reliance Gas Transportation Infrastructure Ltd. The Dutch investigators claimed that the money found its way to a Singapore-based firm, Biometrix Marketing Ltd, with alleged links with Ambani. East West Pipeline had become a privately-held company and was finally sold to Canadian private equity firm, Brookfield. The venture failed to make money as gas production from the RIL-held Krishna Godavari basin dropped off.

While former economic affairs secretary E A S Sarma suggested to cabinet secretary Rajiv Gauba that “these cases are investigated in a holistic manner under the oversight of Lokpal”, the very fact that the trails are open again is significant.

And finally, telecom. From January 1 this year, the interconnect charge of 6 paise per minute on every voice call from other operator was supposed to end. This is what the sector regulator, the Telecom Regulatory Authority of India (Trai) had planned to do. This is what RJio had supported. Except it did not happen.

It reverses a long-running trend since September 2016, when RJio launched its 4G telecom service. The entry of RJio sent the existing operators scurrying for cover. RJio offered a long period of free voice call service bundled with its data plans despite protests by competitors, Airtel and Vodafone-Idea. They  had to follow suit after a sustained dip in their subscriber numbers, which resulted in humungous losses for them. There were other skirmish between the two camps, such as those on termination rights, which always went in RJio's favour.

Simultaneously, an adverse Supreme Court order on a long-pending dispute over what constitutes revenue for a telecom firm and which it needs to share with the government led to both Airtel and Vodafone-Idea announcing losses that added up to Rs 74,000 crore in November last year. RJio came off lightly, since it has joined the telecom sector pretty late compared to its rivals.

In this context, the delay by Trai to implement a new framework for interconnect charges, essentially making them nil, would have hurt Airtel and Vodafone-Idea again. These firms have asked the regulator to keep the charges in place till December 2022-end. Trai has floated a consultation paper on the subject where it has made clear that it needs time to think through the options.