We’re Ready to Resolve RIL Row Via Talks: Moily

ARBITRATION NOT THE WAY FORWARD

Minister says Ranga panel proposals on gas pricing will go to the cabinet soon

   The government wants to junk arbitration proceedings and favours direct negotiations with Reliance Industries in its long-running dispute over the cost of developing the controversial KG-D6 block, Oil Minister Veerappa Moily told ET, heralding a paradigm shift in the ministry's stance towards Mukesh Ambani's firm. 

Moily also said his ministry had accepted all the recommendations of the Rangarajan Committee, which proposed a new formula to link natural gas prices with international benchmarks. The committee also suggested a new regime for future oilfield contracts that would eliminate micro-management by the bureaucracy and harsh audit reports that led to the dispute with Reliance. 
Reliance Industries' fortunes have turned since the exit of Jaipal Reddy, who had taken on Ambani and slapped a notice on RIL to deduct $1 billion from its cost of developing the field because output plummeted, prompting the company to initiate arbitration. Since Reddy's departure, exploration firms such as RIL and Cairn India have received several positive signals. This coincided with RIL's net profit rising 24% after four quarters of decline, helping its shares rise 2.2% and close at a 19-month high of . 919.95. Issues Being Sorted Out 
Shares of state firms have also soared after diesel decontrol. 
Moily said the oil ministry would soon take the Rangarajan Committee's recommendations to the cabinet. Analysts say the proposed pricing formula will significantly raise natural gas prices but only after April 2014, when prices are due for revision. State control on natural gas pricing and not allowing Reliance to recover $1 billion of its development costs in the D6 block are thorny issues for exploration firms. Moily said the issues were being resolved, and to further brighten investor sentiment, a proposal to award 34 exploration blocks, which were held up due to defence concerns, would shortly be considered by the newly-formed Cabinet Committee on Investment. 
"I want to clear all these matters and then we will launch the next round of the New Exploration Licensing Policy," he said. Moily, who was the law minister earlier, said the ongoing legal dispute with RIL can best be resolved by negotiations. 
Last year, the ministry blamed RIL for the fall in gas output from the D6 block, although the company attributed the decline to geological uncertainty. The ministry issued a notice to the company, forcing Reliance to initiate arbitration. RIL said its production sharing contract with the government did not provide for any such penalty. 
"All issues can be resolved amicably though dialogue," Moily said. RIL declined comment on the matter. 
A senior oil ministry official said negotiated settlement was the best option for the government as it did not have a very strong case in arbitration. The average gas sales from D6 block are about 22 mmscmd against the planned production of 86.73 mmscmd approved by the government. While imposing a fine, the ministry blamed Reliance for not drilling enough wells to raise and maintain output but RIL said the sharp fall was because of geological complexities. 
Moily ruled out any revision of D6 gas price before 2014. "We have accepted all recommendation of the Rangarajan Committee and gas price will be based as per its recommendations," he said. 
The oil ministry has accepted the PM panel's suggestion that future oil and gas contracts should be linked with production sharing right from day one and the prevailing cost recovery regime should be dispensed with. Oil ministry officials were wary of taking a stand on any matter pertaining to exploration and production of oil and gas after CAG criticised the oil ministry for being lax while enforcing contractual provisions in blocks operated by private energy firms. "We have taken a view on the Rangarajan committee report and prepared a cabinet note," he said. 
    (With inputs from 
    Nistula Hebbar)

VEERAPPA MOILY MINISTER OF PETROLEUM & NATURAL GAS