It should be interesting to see whether the issues arising out of the face-off between the two Ambani brothers will keep oil companies away from bidding aggressively in the latest round of the New Exploration and Licensing Policy (NELP) that was flagged off on Saturday. While Petroleum Secretary RS Pandey has said there will be no change in the existing policies of NELP, this is precisely the problem area. Pandey has been quoted as saying, “The earlier practice of fixing price at arm’s length, subject to government approval before sale, will continue.” Till now, investors were of the view that the ‘practice’ and the ‘policy’ were the same thing — they are usually, aren’t they? — but they now have to take a call on this since even a casual perusal of the documents given by the government to investors over the years makes it is clear the ‘policy’ is quite different.
The Gazette of India notification on February 10, 1999 when the NELP was first announced gives the details and the fourth bullet point in it says there is ‘freedom to the contractors for marketing of crude oil and gas in the domestic sector’. Not surprisingly then, this line was repeated in the Notice Inviting Offers under the second round of NELP, in which Mukesh Ambani’s Reliance Industries Limited (RIL) won the rights to explore in the Krishna Godavari Basin (KG Basin) — ‘freedom to the contractor for marketing of oil and gas in the domestic sector’.
A few years later, when the petroleum ministry decided to wind up the Gas Linkage Committee in November 2005, this line got repeated. Till then, gas produced by ONGC/OIL was allocated to users by the ministry of petroleum, but with the quantity of such ‘Administered Price Mechanism’ gas reducing and NELP gas expected to increase, the ministry said it was time to wind up the Gas Linkage Committee. “The companies have marketing freedom for the gas produced from NELP blocks,” the ministry’s letter said. The existing firms that had got APM gas would continue to get it and any changes in this could be dealt with on a case-to-case basis. Not surprisingly, this time around also, the notice inviting applications for exploration said the same thing about the contractor’s freedom to market oil and gas within the country.
It is this interpretation of the ‘policy’ and the ‘practice’ that is at the heart of the Ambani dispute (read https://www.business-standard.com/366168/ for more details). The petroleum ministry which felt the ‘practice’ gave it the right to approve each contract rejected the contract between RIL and Anil Ambani’s Reliance Natural Resources Limited (RNRL), saying it was not negotiated at arm’s length — that is, there was no bidding on the basis of which the price was arrived at. Presumably it was this same ‘practice’ that prompted Petroleum Minister Murli Deora to say in Parliament that the RIL-NTPC bid in 2003 (the ‘arms-length’ one on the basis of which RIL-RNRL fashioned their agreement) was actually invalid since RIL had not got the government’s approval for the $2.34 per mmbtu bid it had given to NTPC.
While the Supreme Court judgment in this case will shed light on the ‘policy’ versus the ‘practice’, this is not the only case where the government says something and does quite another. If the government is now seeking to impose its new Gas Allocation Policy — under which neither RNRL’s Dadri nor NTPC’s Kawas and Gandahar plants can get gas — on the NELP where the contractor has the freedom to market gas, it did much the same thing in the case of cricket telecast rights. ESPN, for instance, won the rights to telecast India’s cricket matches from 2005 to 2009 but the government overturned this with a law making sharing of signals with Doordarshan compulsory in 2007! The National Electricity Policy, similarly, promises adequate rates of return to those making investments in the sector — this has varied from 14 to 16 per cent, depending upon what the prime lending rate is — but there are several cases in recent months of electricity boards passing orders forcing companies to sell power to them at rates far below this. In the case of telecom, the government came up with a ‘no-cap’ policy which allowed a few firms to get into the lucrative mobile telephony space at bargain-basement prices, and the moment this happened, it is working on a ‘cap’ policy to stop anyone from coming in. The list goes on.
If India hopes to keep attracting investors, both Indian and foreign, even at a time when the economy is slowing or in sectors that are not growing dramatically, it cannot afford to have a policy that keeps oscillating like a yo-yo, depending upon the government in power and the industrialist in question.