Why Govt should call RIL's bluff on KG-D6 output

Call it frustration or anger, but has Reliance given a solution to the KG-D6 problem

Reliance Industries(RIL) has been accused of hoarding gas in its KG-D6 basin and deliberately reducing production to avail of higher gas prices in the future. An Economic Times report says that the Mukesh Ambani controlled group has challenged the oil ministry that if it thinks there is more gas in the declining fields, it should direct ONGC to drill additional wells and take away the entire new production. 
 

Government should take up the challenge and ask ONGC to drill more wells. It has nothing to lose, except the cost of drilling the extra wells. It would at least put to rest the issue once and for all. They should take up the challenge especially after the news of Reliance and its partner BP have managed to arrest the fall in gas output. 
 

Given the bold statement by RIL, it is probably true that there might not be gas more than the last revised claim of 3.4 trillion cubic feet (tcf) from its earlier claim of 10.4 tcf in December 2006. However, what the company lost in quantity terms, it has more than made it up in rupee terms (or rather dollar terms). 
 

Consider the fact that Reliance was willing to sell gas to NTPC for a period of 17 years at a price of $2.34 mmscmd when Pranab Mukherjee allowed the price to be increased to $4.2 mmscmd. Those were the days when there was no depletion of reserves. Now the price is expected to be increased to at least $8.4 mmscmd (expectations are that the price will be over $11 mmscmd at the time of implementation of the new pricing formula). 
 

Even at a price of $8.4 mmscmd, the company makes more money than what it would at its old price and earlier estimate of reserves. Adjusted for change in dollars, the difference is hugely in favour of the company. Thus even Reliance has nothing to lose by making the bold statement. 
 

Assuming that Reliance is bluffing its way out of the mess, it is a bold and confident one. Oil Minister Veerappa Moily has been lucky for Reliance. Events moved smoothly for Reliance after Moily took over and an increase of gas price on a formula which is claimed to be ‘unique’ and ‘absurd’ by many experts was allowed. Reliance is perhaps attempting to push its luck with Moily knowing fully well that the challenge will not be accepted.