Cabinet fails to take up Reliance-BP deal

Cabinet fails to take up Reliance-BP deal

BP will pay $7.2 billion for 30% stake in 23 exploration blocks held by Reliance.

The Cabinet on Thursday did not take up approval to UK’s BP buying 30 per cent stake in Reliance Industries’ 23 oil and gas blocks,including the showpiece KG-D6 gas fields,for $7.2 billion.

The Cabinet Committee on Economic Affairs (CCEA) did not take up the issue despite oil ministry pushing for it since Wednesday and moving a note for consideration of the panel this morning,officials to the development said.

Information and Broadcasting Minister Ambika Soni after the weekly Union Cabinet meeting said that the CCEA meeting did not take place on Thursday Officials said the finance ministry,in an unprecedented move,had in its comments on the note oil ministry had moved earlier this month seeking nod for the Reliance-BP deal,asked about preconditions that can be imposed while giving approval. It had in particular flagged if a guarantee can be taken from the Europe’s second biggest oil firm that it will reverse the sagging output from KG-D6 fields.

The oil ministry on July 19 sent a supplementary note for CCEA stating New Exploration Licencing Policy,under which Reliance had won the oil and gas blocks,allowed for sale or assignment of participating interest,known as farm-out.


Officials said the Cabinet Secretariat on Wednesday evening sent back the note saying the issue of imposition of preconditions,as had been raised by the finance ministry,had

not been adequately addressed.

The oil ministry moved a note just before the weekly Cabinet meeting took place this morning but it was felt that proper and timely notice has to be given for any matter to be considered by the CCEA,which is a sub-panel of the Cabinet that considers economic issues,they said.

A proper notice is necessary as any member of the CCEA desirous of making comments can come prepared for the meet,they said adding because of the lacunae,the CCEA did not consider the proposal and deferred it.

Officials said the fault in not addressing the issue of preconditions lies at the door of oil ministry as it was their job to clarify that such no explorer in the world can guarantee enhanced output or a discovery. Even in NELP where global bids are floated seeking companies to investment in oil and gas hunt,the government does not take a guarantee that the investment would result in a discovery or increased output. In case of KG-D6,where output has falled from 61.5 million standard cubic meters per day to 47 mmscmd over past one year due to sub-surface technical issues,BP can add value and hope to improve production. But in case such conditions are imposed,BP may not come and the output will remain were it is. Besides India will be deprived of its largest ever foreign direct investment

BP had in February announced buying 30 per cent stake in 23 blocks of Reliance,including prolific KG Basin block D6 and gas discovery block NEC-25. While Reliance made an application for transfer of interest on February 25,Oil Ministry earlier this month sent the proposal to the CCEA for approval.

Officials said finance ministry had also raised the issue of why did oil ministry approach CCEA when it was on its own competent enough to decide on the Reliance-BP deal.

To this the oil ministry had clarified in the supplementary note that a minister was competent enough to take any proposal that he deems fit to the Cabinet for approval. The finance ministry had also raised the issue of bank guarantees to be furnished by BP which was adequately clarified that the UK firm will do so once government approval to its transaction is in place. Home Ministry had previously given a security clearance to the $ 7.2 billion deal.

Although the Oil Ministry has the authority to decide on Reliance selling 30 per cent interest to BP,the ministry earlier this month decided to refer the deal to the CCEA,they said.

At present,100 per cent foreign direct investment (FDI) is permitted in the oil and gas exploration and production (E&P) sector under the automatic route (without going through the Foreign Investment Promotion Board or CCEA). Reliance wants to leverage the worldwide experience of BP to resolve sub-surface technical issues at its KG-D6 gas fields,where production has fallen from 61.5 mmscmd to about 47 mmscmd,instead of rising to the planned 69 mmscmd.

The Mukesh Ambani-led firm hopes BP will be able to fix reservoir issues at the Dhirubhai-1 and 3 gas fields in the KG-D6 block to rapidly raise output to the planned peak of 80 mmscmd and also to help formulate viable plans to bring other finds in the block and in other areas on to production.

BP will pay $ 7.2 billion for a 30 per cent stake in 23 exploration blocks held by Reliance and a performance payment of up to $1.8 billion if the tie-up leads to the development of commercial discoveries.


Reliance and BP will also form an equal joint venture for the import,marketing and transportation of natural gas. Sources said after the CCEA nod,amendments to the Production Sharing Contracts (PSCs) of the 23 blocks would be effected to induct BP as a partner. Reliance will retain operatorship of all 23 blocks.