Although the $7.2-billion deal between global energy giant BP and Reliance Industries (RIL) was given security clearance by the home ministry last month, the petroleum ministry will put a key condition for approving the deal. Official sources said the ministry would stipulate that BP should not export natural gas from the 23 RIL-operated fields in which it will take 30% stake.
The production sharing contracts that operators like RIL sign with the government while blocks are assigned explicitly prevent export of crude oil, but does not place any such restriction in the case of natural gas. Although the end use of gas produced in the country is utilised as per the gas allocation policy, the ministry does not want to leave any ambiguity on this while clearing the deal. The home ministry brought this issue to the attention of the oil ministry while giving its clearance recently, the sources said.
Overseas reports had said that BP, which now sources gas only from Central Asia, would be keen to export gas from Indian fields. The government wants to preempt this possibility.
Source said the petroleum ministry has not decided yet on whether to approve the deal on its own or refer it to the cabinet committee on economic affairs considering the deal size and the scrutiny by agencies like the CAG and the CBI. ?A 30% stake sale is far too high not to be taken to the CCEA,? said another official, who asked not to be named. The CCEA nod could take anywhere between a month to 45 days.
?Approval for the Cairn-Vedanta deal and the RIL-BP transaction will send a strong positive signal to the investor community that India is serious about bringing external expertise and capital into the hydrocarbon exploration and production sector,? said Kalpana Jain, senior director, Deloitte Touche Tohmatsu India.
Ministry sources also said they could not clear the transaction so far as they were too busy with the Cairn-Vedanta deal, the price revision and duty cuts on fuel and the CAG draft report on performance audit of certain oil and gas contracts including those with RIL and Cairn. RIL wants the deal to go through this financial year itself before the proposed direct tax code comes into force April next year in order to take advantage of the current tax policy dealing with proceeds from oil and gas asset sales. FE had reported earlier that the finance ministry has decided not to object to the structuring of the transaction under section 42 of the Income Tax Act, that allows the Indian energy major to recover its un-allowed exploration costs from the sale proceeds. However, assessment officers can raise a tax demand if they feel so once the transaction goes through. Section 42 of the Act, allows a hydrocarbon company to deduct from the proceeds of stake sale the exploration costs, that were not recouped from the sale of oil or gas. The proceeds from the stake sale or transfer will be deemed as business income to enable such cost recovery. Under the new tax code, this benefit will be restricted.