The government is mulling over action against Reliance Industries (RIL) for buying all the coal bed methane (CBM) it produced allegedly violating a policy, according to a report by The Economic Times.
The government is looking at options to either terminate the production-sharing contract (PSC) or invoke arbitration to penalise the company. It has already informed RIL of its objection to the gas sale, but the company has asserted that it acted transparently and correctly.
“There are two options — terminate the PSC or invoke arbitration. The government is yet to make up its mind on which course to take,” a source told the newspaper.
A RIL spokesman told the newspaper that the gas sale had maximised government benefits. Since, the company made a higher bid and won the auction, the share of state's profit from the output, apart from increasing tax revenue, also went up.
“RIL conducted open and transparent bidding process through a reputed independent third party, in compliance with provisions of the CBM contract and policy. RIL emerged as the highest bidder. Supply of CBM gas to RIL, pursuant to the bidding process, maximises benefit to the government. Gas being supplied from RIL’s block is in compliance with provisions of the CBM contract and policy,” the spokesperson said.
The policy allows a producer to sell CBM to an affiliate if it fails to find a buyer in an open and transparent auction, according to officials. However, the government is of the view that RIL did not act in line with policy by not waiting for another buyer and participating in the auction. The officials said that the transaction could not be regarded as an arm’s-length sale because the auction was conducted by Crisil Risk and Infrastructure Solutions, who were appointed by RIL.
Even as the auction helped discover a higher price, officials believe that the sanctity of the process was more important because if bidders lost faith, future auctions may see limited participation and lower price discovery.