The RIL gas price fixation formula approved by the government and defended strongly by the union petroleum ministry before the Supreme Court, last year, against a Bombay High Court order in favour of younger Ambani brother, Anil, in the gas price and allocation case, did the trick and reportedly induced BP to invest in the RIL's hydrocarbon property. In the global context, the price of RIL’s KG basin gas today is among the most attractive ones. Even BP, which lost billions in compensations, damages and production loss in last year’s Gulf of Mexico oil drill-rig disaster, found it worthwhile to make a fresh investment in a new site, in hitherto untested water of the Bay of Bengal.

The deal is too good to be believed at a time when the country’s business morale is at its nadir, following the unraveling of the 2G spectrum allocation scam, spectre of large penalties hanging on several big organizations and business houses involved in the spectrum grab, Supreme Court-monitored CBI investigation into the money trail, depressed stock market, falling foreign direct investment and the government conceding the opposition demand for joint parliamentary committee prove into the mega financial fraud.

The date and time chosen to disclose the RIL-BP deal projects Mukesh as a sharp corporate strategist and a great friend of the United Progressive Alliance government. This helped divert the public attention from constant scam stories to development news. Everyone in India realizes the importance of generating more petro-energy locally. The market is bound to react positively. RIL shares are certain to gain. RIL and the country will hopefully benefit a lot from BP’s technology, expertise and investment in billions in exploitation of oil and gas resources under the east coast basin. It is celebration time for Mukesh Ambani, RIL, the stock market and the government.

In a way, the deal is also strategic to the country from the point of view of India’s coastal defence with the possible large-scale presence of BP in Indian waters in the backdrop of growing Chinese activity in the region. The RIL oil and gas blocks lie in water depths ranging from 400 to 3,000 meters. Most of them are left unexplored and unexploited. The existing production is about 1.8 billion cubic feet of gas per day (bcf/d), accounting for almost 40 per cent of the country’s natural gas output and 30 per cent of its consumption. A full-flow oil and gas exploration will see the presence of dozens of large BP-RIL off-shore rigs in the bay waters, ensuring constant security vigil in the coastal region.

BP is said to have agreed to make ‘future performance payments’ up to $1.8 billion to RIL based on success in oil and gas exploration leading to commercially viable discoveries. This is understandable. On paper, the region is considered to be the ‘most prolific gas basin’ in India although a large part is yet to be fully explored, which calls for huge investment in logistics, hardware and skilled operatives. RIL will continue to be an operator in the proposed joint venture, sharing production.

Yet, the skeptics are not fully convinced about the deal in the absence of the details of the proposed 50:50 RIL-BP venture and the legally binding provisions, including share buy-back or resale, on the two parties in the contract and, also, how does it help RIL’s lakhs of other ordinary shareholders as their company parts its priceless asset with mighty BP, a UK-government promoted and protected global petroleum giant, for almost a song. It is also not clear as to how the senior Ambani brother plans to utilize the sale proceeds from RIL’s oil and gas blocks, altogether 23, along India’s east coast covering over 1,000 kms from Tamil Nadu to West Bengal. There is also no technical reason to believe that RIL shares will immediately zoom as a result of the deal.

Mukesh Ambani’s constant rise and his ability to get the government and institutions on his side are in sharp contrast of the volatility-prone business fortunes of brother Anil, which seems to have been always creating controversies ever since the split of the late Dhirubhai Ambani’s business wealth between the two brothers. These controversies witnessed a huge loss of market capitalization, $3 billion under unconfirmed estimates, by Anil Ambani group companies over the last few weeks alone.

Mutual trust is key to the success of any 50:50 joint business venture corporation. Unilever plc and Royal Dutch Shell, both of British origin, are among the best known and best managed international joint ventures. India’s own experience in 50:50 joint ventures is hardly rewarding, except probably for the Singapore-based Tata-NYK (Japan) venture in shipping. RIL’s own record in dealing with minority foreign business partners is anything but impressive. Several of them were bought over by RIL in the end. This gave an impression that such foreign equity participation in RIL projects were more to manipulate the market and the domestic investor community than of any true substance. However, one thing is certain that RIL does need a strong global partner if it is serious about emerging as a long-term player in the extremely high cost and risky hydrocarbon exploration business. (IPA Service)