Book Review: Not Just an Accountant- The Diary of the Nation’s Conscience Keeper

Book: Not Just an Accountant: The Diary of the Nation’s Conscience Keeper

Author: Vinod Rai

Publisher: Rupa

Pages: 288

Price: Rs 399  

In the case of the Krishna Godavari (KG) basin, the contract was awarded to the RIL (Reliance Industries Limited) consortium in 2000. Gas was discovered, the declaration of commercial discovery was notified in 2003 and 2004, and a development area of about 339.41 sq km was delineated. The Initial Development Plan (IDP) as per the provisions of the PSC (Production Sharing Contracts) was submitted for a production delivery rate of 40 million metric standard cubic meters per day (mmscmd) of gas. The probable gas reserves were assessed as 5.3 trillion cubic feet (tcf). This IDP, envisaging a total capital expenditure (Capex) of US$2.39 billion, was approved by the management committee comprising RIL and DGH (Directorate General of Hydrocarbons) officials in November 2004. However, this IDP was sought to be revised by RIL through an addendum IDP submitted in October 2006, indicating a production rate of 80 mmscmd of gas with the availability of gas reserves probability being enhanced to 11.3 tcf. Evidently, the Capex would be higher and thus, was pegged at US$5.2 billion up to 2009, with gas being produced from twenty-two wells. However, yet again in November 2006, RIL submitted a revised proposal indicating expenditure in two phases. Phase I was pegged at US$5.2 billion and Phase II at US$3.6 billion, thereby hiking the total to US$8.8 billion with fifty wells being dug for producing gas. This Amended Initial Development Plan (AIDP) was approved by the management committee in December 2006. These approvals were all as per the provisions in the PSC.

The PSC has been so designed as to permit the private contractors ample time and opportunity to fully explore the contract area within the timelines decided. It also stipulates that they relinquish, in a phased manner, the areas where the probability of availability of hydrocarbon is poor. This enables them to retain areas where they have discovered hydrocarbon, while at the same time ensuring that the relinquished portion can be reallocated by the government through a competitive bidding process to other potential bidders.

There could be those contractors whose views and appraisals on hydrocarbon prospection differ from those who relinquish such areas. Thus, as per Article 4 of the PSC, a contractor can proceed from Phase I to Phase II of exploration only after relinquishing 25 per cent of its total contract areas. In the case of RIL, they moved on to Phase III with no relinquishment, which is tantamount to squatting on half the area despite having drilled wells only in one corner of the total area.

The DGH objected to this non-relinquishment in May 2004 as it contravened the PSC provisions. RIL would not accept the interpretation by the DGH of the PSC conditions and refused to relinquish the 50 per cent area.

Ultimately, it was the DGH who, confronted with the sustained technical assertions of RIL, was compelled to acquiesce in May 2005.

This happened repeatedly. In the entire process of protracted correspondence, RIL's proposal right from April 2004 — that it would not relinquish any area and instead retain the whole contract area as 'discovery area' — appeared to have been accepted, and RIL moved to Phase III. By now, the management committee, with only one DGH representative, permitted the retention of the whole area. This issue was also examined by Mo PNG (Ministry of Petroleum and Natural Gas) who, after seeking a lot of clarifications, accepted the contractor's claims in July 2008. The final result of all this correspondence, including references to the ministry and clarifications from the DGH, permitted RIL to retain the entire 7,656 sq km as 'discovery area' without digging wells in it, in direct contravention of the PSC contractual conditions. This militates against the spirit of NELP (New Exploration Licensing Policy), which seeks to maximise the exploration efforts and minimise hoarding of exploration acreage. The efforts of RIL were aimed at retaining the entire area without themselves exploring it and without letting another contractor do so either! Irrespective of any technical argument, how they were allowed to breach contractual provisions merely on their assertion that there was a 'strong likelihood' of the presence of hydrocarbon in the entire area is not understood. After five years of correspondence, the contractor merrily proceeded with his own scheme of development with the government toeing the line.

Excerpted with permission from the publisher, Rupa