OilMin refers Reliance-BP deal to Cabinet for nod

More than four months after UK's BP agreed to buy a 30% stake in Reliance Industries' (RIL) oil and gas blocks, the Oil Ministry has referred the $7.2 billion deal to the Cabinet Committee on Economic Affairs (CCEA) for approval.

Although the Oil Ministry has the authority to decide on Reliance selling 30% interest to BP in 23 exploration blocks, including the prize eastern offshore KG-D6 gas fields, the ministry yesterday decided to refer the deal to the CCEA, sources privy to the development said.

The $7.2 billion deal is the single largest foreign direct investment in the country and Reliance had on February 25 made a formal application to the Oil Ministry for approval of the transfer of stake to Europe's second biggest oil company.

Sources said the decision to refer the deal to CCEA, which is likely to delay approval for the deal, came more than a month after the Ministry of Home Affairs gave security clearance to the BP stake acquisition.

Presently, 100% 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).

Sources said while security agencies' no-objection certificate for the Reliance-BP deal was unconditional, the Home Ministry's one-page note had flagged a couple of issues.

The Ministry had wanted to know if the New Exploration Licencing Policy (NELP), under which Reliance won blocks like KG-D6, provided for the sale of interest and if BP could take oil and gas produced from the area outside the country, as per the extant rules.

NELP provides for the farm-out of interest and several firms have done so in the past, including Cairn India, which sold 90% stake in the KG-DWN-98/2 block adjacent to the KG-D6 fields to Oil and Natural Gas Corp (ONGC) in 2005, sources said, adding that export of oil is not permitted under Indian law.

For natural gas, operators like RIL don't have marketing freedom and it is the government which fixes not just the price and quantity, but also the buyers of the fuel.

With such stringent laws, it is not possible for BP to take oil and gas produced from Reliance blocks outside, they said.

The Home Ministry had also asked if Reliance could not have offered the stake to state-owned gas utility GAIL India or any other PSU. But none of the state firms, least of all gas trading firm GAIL, has the deepsea technology that Reliance is looking for to develop difficult to exploit hydrocarbon reserves.

Also, the Home Ministry assertion that the Reliance-BP gas trading venture would erode GAIL's share ran against the government policy of inviting private sector competition and is contrary to the spirit of a free market economy, sources said.