The excitement over Thursday's Jio launch may sooner or later fade away, but the Shah Committee's indictment of Reliance Industries Limited (RIL) will ensure that the company remains in a spot.
The one-member panel of former Delhi High Court chief justice Ajit Prakash Shah on Wednesday held RIL and its foreign partners BP Plc and Niko Resources guilty of taking out natural gas that belonged to the Oil and Natural Gas Corporation (ONGC) in an offshore block in the Bay of Bengal. Worse for the company, this comes a month after the Comptroller and Auditor-General of India pegged “excess cost recovery” from the KG-D6 gas block operated by RIL in the Krishna-Godavari basin at $1,547.85 million or Rs 9307.22 crore.
The Shah Committee's report is one that RIL did not want the public to see. The report, in Chapter 5, unambiguously noted, "RIL said that any recommendations given by the Committee, even if not binding, would be likely to cause irreparable harm to RIL and its reputation since the recommendations would be released in the public. The recommendations would also likely provide the foundation for the Government of India to base its actions on, and guide the determination of civil proceedings."
So, what's this report about?
The Shah Committee's report pertains to a dispute over extraction of natural gas that made news in July 2013, when the ONGC wrote to the director-general of hydrocarbons (DGH) seeking data on an adjoining block that was under RIL. The DGH is the regulatory authority for the management of natural gas in India, and is under administrative control of the ministry of petroleum and natural gas (MoPNG).
Just before the April 2014 Lok Sabha elections, ONGC, RIL and DGH agreed to hire an independent consultant to sort out claims and counter-claims regarding interconnectivity of the reservoirs from which they were extracting natural gas. But even as the results were about to be declared, ONGC filed a petition in the Delhi High Court. ONGC alleged that RIL's wells "so drilled and constructed that there is a pre-planned and calculated slant/angular incline towards the gas reserves of (the) petitioner with a clear idea to tap the same." ONGC accused RIL of drawing natural gas worth Rs 30,000 crore from the former's wells.
The international consultant agreed upon by all three parties was the US-based DeGolyer & MacNaughton (D&M). The consultant filed an interim report in October 2015, and the final report in December that year.
The D&M report said that reservoirs in ONGC's Krishna Godavari basin KG-DWN-98/2 (KG-D5) and the Godavari Producing Mining Lease (PML) were indeed connected with Dhirubhai-1 and 3 (D1 & D3) fields in the KG-DWN-98/3 (KG-D6) block of RIL. It said 11.122 billion cubic metres (bcm) of ONGC gas had migrated from Godavari-PML and KG-DWN-98/2 to KG-D6. At a price of $4.2 per million British thermal unit (mBtu), the volume of gas belonging to ONGC that RIL produced was worth $1.7 billion (Rs 11,055 crore).
For some reason the new government led by the Bharatiya Janata Party (BJP) dithered. The MoPNG minister for state Dharmendra Pradhan, two weeks after D&M submitted its report, appointed AP Shah to examine the D&M findings and recommend action to be taken by the government.
What's so damning about the report?
The Shah Committee noted that the D&M report itself had been commissioned under terms agreed upon by all stakeholders in the dispute, especially RIL and ONGC. It remarked, "The D&M report itself appears to be reasonable in its research, methodology and conclusions drawn, and is hard to be faulted. In the circumstances, and with the information available at hand, it is difficult for the committee to believe that the manner in which the D&M report was arrived at was questionable."
This apart, Shah observed, "The committee finds that the 2003 Appraisal Report prima facie reveals that RIL had prior knowledge about connectivity and continuity of reservoirs." This is where he took RIL to task, pointing out that the company did not bring this appraisal report to the notice of the DGH.
That's not all. Since the D&M report looked at migration of gas till March 2015, the Shah Committee has recommended that the government should look into migration thereafter. It has also criticised the ONGC which too had some prior knowledge about the issue but twiddled its thumbs for six years.
The most significant aspect was this, "The committee concludes that the Government of India, and not ONGC, is entitled to claim restitution from RIL for the unjust benefit it received and unfairly retained. ONGC has no locus standi to bring a tortious claim against RIL for trespass/conversion since it does not have any ownership rights or possessory interest in the natural gas." This is very much in sync with the May 7, 2010 Supreme Court judgment (in the Mukesh Ambani vs Anil Ambani dispute) which held that natural gas belongs to the people of India, and the government is the custodian.
The implications of the committee's findings and observations are worse—it is going to affect the financials of RIL. The CAG had remarked only a month back, “In case if the MOPNG accepts D&M report conclusion that RIL did draw gas from ONGC’s contiguous fields, and directs RIL to compensate ONGC for the same, it may affect the financials of KG-DWN-98/3 including cost petroleum, profit petroleum, royalty and taxes over its entire period of operation (since April 2009 when production of gas commenced from the block).”
Pradhan has sought another breather—a month in which to act on the Shah panel's report. But whether this breather is for the ministry or for Reliance, is anybody's guess.
[Note: Reliance was contacted for its comments on the report, but the company did not respond.]
