 "Is the Reliance gas story over?")
A lot was expected from Reliance Industries’ gas find. It was supposed to be a game changer for the company and the country. However, recent events, post the Hindalco Coalgate fiasco and the revised field development plan (RFDP) suggest that the endgame has started.
An Economic Times report says that oil ministry is reviewing its decision of higher gas prices, following the CBI case against former coal secretary, P C Parakh for favouring Hindalco. That’s policy paralysis at play; victims - Reliance Industries and its shareholders.
The report goes on to say that an independent consultant to look in to the reasons of the fall in production will not be allowed as it would seem to be favouring the company. They would however, go ahead with it if the cabinet approves.
Reliance has been asking for an independent consultant of international repute to look into the incident after the first consultant appointed by Directorate General of Hydrocarbon (DGH) blamed Reliance for fall in production owing to non-drilling of oil fields.
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Though the logic for raising the gas prices has been contentious since the time C Rangarajan made it public, not allowing a rise in gas prices, which comes into effect from April 2014, will cause a lot of anxiety to the shareholders. In their September 2013 quarterly results disclosure, Reliance had said that they have not yet been informed on the gas price hike.
Another news report says the cabinet may opt for wider review of natural gas prices and may opt for details of other fields that have not been developed by Reliance. These events indicate that the government is not willing to commit on increasing gas prices anytime soon. The sound bytes that the event can generate and the political equity at stake would make it difficult for the government to clear the price rise in the present season of elections. More importantly, the bureaucracy would not like to play ball, as it is their neck which is on the chopping block.
This does not augur well for Reliance especially when we look at it in conjunction with the revised field development plan (RFDP). As per the RFDP, Reliance’s production is expected to gradually fall from the present level of 14.01 mscmd to 6.26 mscmd in 2020-21 and disappear in 2021-22. Oil and gas contributes around 5% of Reliance’s earnings before interest and tax. Even at the current level of production, the company could have earned one of its highest profits if prices were increased as mention in the article here.
Delay in raising gas price will make its contribution to the company’s profit inconsequential. Till the dust settles on the Coalgate issue and the government and bureaucracy start functioning again, Reliance shares will once again be on a stall mode.