Why LN Mittal is still bearish on India
How Libor, money-laundering will affect HSBC's profits

Corporate Jul 30, 2012

Will govt inaction force RIL to exit exploration?

By Firstbiz Staff

The government's inaction on the policy front is pushing Reliance Industries to take drastic decisions.

A report in the Business Line says the company has put on hold investments in exploration, thus giving rise to speculation that it may be exiting the business altogether.

The company has drawn up plans for the next phase of capital investments in other segments such as refining, petrochemicals, retail and broadband services, but not for exploration, the report said.

Reuters

The company and the government have been at loggerheads over the declining output from the D6 block in the Krishna-Godavari basin.

The company had recently warned that the production from the block may completely stop if the government does not approve the $225 million investment plan at the earliest.

Meanwhile, the government shot back saying the government can give approval only if the RIL gives Comptroller and Auditor General full access to it records.

A survey by rating agency Crisil had found that policy bottlenecks are squeezing private sector investments in the country and many companies are unwilling to make any investment in new projects.

If RIL pulls out of the exploration business, it is going to be a major setback for the government. It will be a concrete proof for the frustration of the private sector in the country.

An earlier Firstpost article had argued the fight between the oil ministry and Reliance Industries has pointers for crony capitalism.

It said only an independent specialist probe will establish whether KG-D6 is facing real technical problems in raising output or not.

The second point was the issue is making it clear that the country's largest conglomerates cannot always get its way with the government and this is good news for governance.

Thirdly, and most importantly, the spar has consequences for how foreign investors will view India as a destination.

"In fact, the tussle between Reliance and the oil ministry is symptomatic of the fundamental flaws in several policy-making areas involving energy pricing, privatisation, the contractual obligations of government and its private partners, etc. More than anything else, it is a comment on the opaque nature of decision-making in the government and the consequent stranglehold of crony capitalism," it said.

by Firstbiz Staff

Related Stories.