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It's raining bad news on Reliance industries

Its raining bad news on Reliance industries
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It\'s raining bad news on Reliance industries, In February this year, Aam Admi Party leader Arvind Kejriwal targeted Narendra Modi, accusing him of links with RIL Chairman Mukesh Ambani.

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Mukesh AmbaniIn February this year, Aam Admi Party leader Arvind Kejriwal targeted Narendra Modi, accusing him of links with RIL Chairman Mukesh Ambani.

Hours later, BJP leader Chandan Mitra told a television channel that the party opposed the Rangarajan formula on gas price hikes that Kejriwal alleged was in favour of Ambani.

No one gave much importance to Mitra’s statement because of the perception that relations between RIL and the Centre would improve dramatically once the UPA, with which India’s largest private company had a lot of run-ins, was voted out of power. However, four months later, Mitra has proved to be spot on.

There is no evidence to suggest any warmth in the relationship between the new government led by Modi and Reliance Industries. The first of the bad news was the government’s decision to defer the decision on higher gas prices.

This is a huge setback for RIL as in April this year, the company had asked the oil ministry to announce the new price immediately after polling ended on May 12, saying this was necessary to avoid ‘irreparable’ loss to all parties, including the government.

The new pricing formula arrived at by the UPA government almost doubled the price of natural gas to about $8.34 per million British thermal unit and was to be implemented from April 1.But it was put in abeyance following a directive of the Election Commission.

To make matters worse, the new government also maintained the previous regime’s policy of imposing penalties on RIL for not meeting production targets. The latest penalty takes the total to more than $2.3 billion.

The bad news is not coming from the government alone. The CAG has drafted a report to the telecom department, suggesting cancellation of the nationwide broadband spectrum allotted to Reliance Jio in 2010 on the grounds that the company violated rules.

In its draft report, CAG said that DoT failed to recognise the rigging of the auction right from the beginning in which a small ISP, Infotel Broadband Services (later acquired by RIL) emerged winner of pan-Indian broadband spectrum by paying 5,000 times of its net worth. And then there came reports of the anti-corruption bureau of the Delhi government investigating the complaint by former Delhi Chief Minister Arvind Kejriwal on gas pricing.

Meanwhile, the market regulator is starting its investigations into the alleged fraudulent trades by the company in the shares of subsidiary Reliance Petroleum (RPL) just before its merger with RIL.

And if this was not all, just a few days before the Lok Sabha election results, ONGC sued RIL in the Delhi High court, alleging that RIL drew gas from its fields KG basin.

It’s not that Reliance is not fighting back. The company has hired some of country’s best legal brains to present its side of the story to the courts and restructured its communications team.

Though operationally, the company is doing well and is investing a massive Rs 1,80,000 crore in the next three years to increase its petrochemicals and oil and gas business, the negative news keeps coming back. Unlike the Tatas and Birlas, both of which earn sizeable revenues from abroad, RIL’s success story is mainly India-centric. But it is taking steps and is investing more abroad.

A detailed RIL statement on the issues said the company always had a robust and composite relationship of transparency with several hundred governmental agencies ranging from those residing at the ground level to public sector units to various state governments. “As for matters pertaining to MoPNG, the matter is under arbitration, a process duly provided for in our rights as contractors”, the RIL statement added.

RIL, which has presented its case on its website, said the first gas price was approved in 2007 when the crude oil price was hovering at $30 a barrel. Crude oil prices have moved up to over $100 a barrel and imported LNG from around $4 to over $14 a unit. It also says the charge of hoarding gas by the company is technically impossible.

The decline in production in D1-D3 fields in the KG-D6 block is due to reservoir complexity and geological surprises and not due to hoarding.

Peers agree. A former CEO of oil MNC said RIL was not at fault as far as the fall in production of gas from KG-D6 fields was concerned.

All over the world as the production of oil and gas is highly uncertain and a highly complex process, production can meet any unexpected hurdle and it is very difficult for a lay person to understand the complexities of a field.

“I don’t think RIL can be blamed for a fall in gas production. The government is the owner of the gas assets and it can take any step as it deems fit in the national interest,” he says.

“But to single out RIL for the fall is not correct,” he adds.

Meanwhile, riding on a 16 per cent rise in RIL shares since January this year, large investors and analysts say the worst is now behind the company. In a report, multinational bank UBS says it expects a gas price hike at $7.5 a unit from October this year and a gradual recovery in KG-D6 output to 15 mmscmd. Analysts are also expecting a ramp-up of gas production post arbitration, which is expected to be resolved by 2015.

That’s good news for the company which has been plagued by bad news for quite some time.

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