The excitement over Thursday’s Reliance Jio launch may sooner or later fade away, but Justice AP Shah Committee’s indictment of Reliance Industries Limited – that it made unfair gains from the Oil and Natural Gas Corporation’s oil fields in the Krishna-Godavari basin – will ensure that the company remains in a spot.
The one-member panel of former Delhi High Court chief justice AP Shah on August 31 held RIL and its foreign partners BP Plc and Niko Resources guilty of taking out natural gas that belonged to ONGC in an offshore block in the Bay of Bengal.
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, as is noted unambiguously in its Chapter 5:
“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 report pertains to a dispute over extraction of natural gas that made news in July 2013, when ONGC wrote to the director-general of hydrocarbons seeking data on an adjoining block that was under RIL. The director-general 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.
Just before the April 2014 Lok Sabha elections, the three parties to the dispute – ONGC, RIL and the director-general – 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 were
“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.”
Over all, 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, who filed an interim report in October 2015, and the final report in December that year. The report said that reservoirs in ONGC’s Krishna Godavari basin KG-D5 and the Godavari Producing Mining Lease were indeed connected with KG-D6 block of RIL.
It said 11.122 billion cubic metres of ONGC gas had migrated from Godavari-PML and KG-D5 to RIL’s KG-D6. At a price of $4.2 per million British thermal unit, the volume of gas belonging to ONGC that RIL produced was worth $1.7 billion or Rs 11,055 crore.
The government dithered.
Two weeks after the above report was submitted, the minister for state for petroleum and natural gas Dharmendra Pradhan appointed Justice AP Shah to examine the report’s findings and recommend action to be taken by the government.
What’s so damning about the report?
The Shah Committee noted that the DeGolyer & MacNaughton report itself had been commissioned under terms agreed upon by all stakeholders in the dispute, especially RIL and ONGC and 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 director-general of hydrocarbons.
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 as well. It has also criticised the ONGC which too had some prior knowledge about the issue but did not take any action 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 keeping 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 – as they will affect the financials of RIL. The CAG had remarked only a month back that in case the ministry accepted the conclusion that RIL did indeed draw gas from ONGC’s contiguous fields, and directs RIL to compensate ONGC for the same, it may affect the financials of KG-D6 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. Reliance was contacted for its comments on the report but did not respond.
Subir Ghosh is a journalist and researcher in Bengaluru, and co-author of Gas Wars: Crony Capitalism and the Ambanis.
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