The minister, who previously held the oil portfolio, is understood to have made the point that RIL was in breach of contractual obligations and had failed to make up for the shortfall in gas production.
The minister, who previously held the oil portfolio, is understood to have made the point that RIL was in breach of contractual obligations and had failed to make up for the shortfall in gas production. He criticized the condition of a bank guarantee imposed on RIL as mere eyewash, and said the firm's adamant behaviour and the loss caused due to idling of gas-based power plants did not merit any accommodation of RIL's arguments.
The minister made the point that the huge bank guarantee — the cabinet note itself suggests this might run into $9 billion (If arbitration proceedings linger on) — would be near impossible to execute,
Finance minister P Chidambaram is understood to have suggested an escrow account in addition to the bank guarantee. Rural development minister Jairam Ramesh, who had supported Reddy's arguments at the previous cabinet meeting, did not intervene.Reddy, widely seen to have been shifted from the oil ministry due to differences with RIL, had in a previous cabinet meeting opposed the decision to double price of gas from April, 2014 onwards. The issue has split the government with the power and fertilizer ministries opposing the move, arguing that it will push up prices for consumers.
Production from the offshore fields run by RIL has fell to zero since March this year, the government has told Parliament's finance standing committee. The oil ministry — which has now backed the price hike — told the committee that Rs 40,000 crore of investments were at risk of becoming non-performing assets, primarily due to low production in the RIL fields.
On Friday, CPI leader Gurudas Dasgupta wrote to PM Manmohan Singh protesting the decision, saying it amounted to "loot of natural resources by corporate interests". Dasgupta pointed out that the government itself had previously concluded that the default on part of RIL is deliberate and said the "gigantic default" merited cancellation of contract.
The cabinet note considered on Thursday did list a proposal to exclude Reliance D 1 and D3 from the new gas pricing guidelines on the ground that the petro-chemical giant should first make good for production shortfall as on March 31, 2014. Either RIL makes up for the shortfall or the process of pending arbitration and attendant legal matters should be satisfactorily settled in favour of the contractor, the note pointed out.
The note for CCEA does raise questions about whether the bank guarantee mechanism will end up diluting the government position in arbitration proceedings that the fault for shortfall in production lies with RIL and not because of some geological surprises, as the contractor has claimed.
via Business - Google News http://news.google.com/news/url?sa=t&fd=R&usg=AFQjCNFg8NzgxXy_qIQSRFffT-AgtKW-Vg&url=http://timesofindia.indiatimes.com/business/india-business/Jaipal-Reddy-red-flags-RIL-gas-price-hike/articleshow/27696768.cms
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