$7.2 billion RIL-BP deal gets Cabinet nod

Govt clears BPs acquisition of 30% stake in 21 RIL oil & gas fields.

The Cabinet committee on economic affairs (CCEA) on Friday cleared London-listed BPs proposed 30 per cent stake acquisition in Reliance Industries 21 oil and gas blocks but deferred a decision on two other blocks that were part of the $7.2-billion deal announced in February,petroleum minister S Jaipal Reddy said here.

The two excluded blocks one in Assam and another off the northeast coast are not producing oil or gas now and decision on them was deferred for technical reasons,the minister said.

The approval for the deal,which would pave the way for the largest FDI into Indias oil and gas sector,would enable Reliance to benefit from BPs deep water exploration expertise.

The petroleum ministry and Reliance Industries are in correspondence over certain pending issues such as granting approval for second phase of exploration in the two blocks for which approval has not been given. The ministry will subsequently take a suitable administrative decision on this,said Reddy while briefing reporters about the CCEAs decision. He added that the ministry might in future grant or refuse consent to transfer 30 per cent participating interest in these two blocks.

It is one of the major foreign investments in the history of India and in the history of reforms, Reddy said,adding that the deal not only would bring foreign direct investment but also vast technical expertise into Indias hydrocarbon sector.

BP welcomed the decision and said it is awaiting a formal communication. BP is keen to be a long-term partner with India in its quest for energy security. We will now work to complete the commercial agreements with Reliance and move forward with this exciting venture, said an official statement from the company.

Approval to the RIL-BP transaction will send a strong positive signal to the investor community that India is serious about bringing external expertise and capital into the hydrocarbon exploration and production sector, said Kalpana Jain,senior director,Deloitte Touche Tohmatsu India.

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BP Exploration (Alpha) Ltd,through which BP executes the deal,will have to submit all guarantees and documents as per the provisions of the respective production sharing contracts of the blocks involved. The ministry proposes to enforce all provisions of the production-sharing contracts. The petroleum ministry expects RIL to step up gas output from its KG-D6 block,but did not give an instruction to the consortia.

RIL is expected to benefit from BPs deepwater exploration expertise in stepping up production from the Krishna-Godavari basin. Falling production from this block had forced the government to intervene and ask RIL in May to fully meet the contracted gas supplies to priority consumers in sectors like fertiliser,LPG,power and city gas distribution. The ministry,however,allowed RIL to make pro-rata cuts in gas supply in the case of remaining sectors like steel and petrochemical producers and refineries. The move affected companies like Ispat Industries,Welspun Maxsteel and Essar Steel,who wanted their full contracted gas supply.

As per the Director General of Hydrocarbons,Reliance is now producing 48 million standard cubic metres per day (mscmd) of gas from its D6 block in the KG basin. The output last year was higher at 60 mscmd,while the planned peak capacity is 80 mscmd. RIL wanted the deal to go through this financial year before the proposed direct tax code comes into force in April next year so as to take advantage of the current tax policy dealing with proceeds from oil and gas asset sales. fe