In what may come as a breather for existing and potential investors awaiting the outcome of the recent controversy surrounding the Reliance Industries Ltd (RIL) pricing formula for gas sales from its D6 block in the Krishna-Godavari region, the government has decided to protect the sanctity of all production sharing contracts (PSCs) entered into so far under the New Exploration & Licensing Policy.
While there have been instances of energy-rich countries like Russia, Venezuela and Ecuador requiring renegotiation of PSCs, government officials disclosed that it has been decided at the highest level that it would not be in India?s interests to renege from a contract entered into by another party in good faith. This would not be in the best interests and may even have a negative repercussion on sentiments.
?Any such move would lead to loss of credibility in the country?s assurances to potential investors in different sectors and would ultimately affect medium- and long-term investments. Thus, having entered into the PSC, India must work to ensure that the contract is applied in such a manner that it fulfils our cardinal interests,? said a government official quoting a recent note from the Prime Minister?s Office.
The biggest casualty of the RIL gas pricing controversy has been the offering of exploration blocks under the forthcoming Nelp-VII round, which now stands postponed to November, or even later, as against the earlier plan of August end.
Asked to comment, a senior petroleum ministry official said, ?Currently, we have the entire international investors community watching us. We have a choice: to either honour an already signed contract or go back on it by asking for renegotiation. However, after discussions at all levels, it has been unanimously agreed not to renege from the contract. We can still work out ways within the contours of the legal framework to ensure the interests of all parties, including user industries as well as the contractor, are taken care of in the best possible manner.?
Towards this end, the petroleum ministry, in consultation with the law ministry, is in the process of working out an appropriate gas utilisation and allocation policy, required under the PSC. It still remains to be seen how best the two policies can be applied to the signed PSCs without disturbing their sanctity.