Reliance Industries Limited’s (RIL) move to sell a 20% stake in its refining and petrochemicals business to Saudi Aramco has hit a roadblock with the Indian government moving the court to block the US$15 billion deal.
The government’s application in the Delhi High Court seeks to restrain Reliance Industries, promoted by India’s richest man Mukesh Ambani, and its partner British Gas, now owned by Royal Dutch Shell, from disposing of assets, including the sale of a stake to Saudi Aramco.
They cited a failure by the two companies to honor their payment under a 2016 international arbitral award in Panna-Mukta and Tapti oil and gas fields production sharing contracts, which it claims is $3.5 billion.
The government has been fighting an arbitration with Reliance Industries and its partner since 2010, alleging the companies appropriated huge sums of money in violation of the production sharing contract in the Panna-Mukta and Tapti oil and gas fields.
Reliance Industries has decided to counter the government petition. The company claims the government’s plea is an abuse of process as no arbitration award has fixed any final liability of dues on the company.
In a counter-affidavit, Reliance Industries said it was a “falsehood to say that the arbitration tribunal had passed an award requiring the company and its partners to pay $3.5 billion to the government.”
An international arbitration tribunal issued a partial award in October 2016 in the dispute between the Indian government, BG Exploration & Production India Ltd and Reliance Industries regarding the Panna-Mukta and Tapti Production sharing contracts. However, it had not awarded any monetary sums as all the issues were not decided.
Certain parts of the 2016 award were challenged by Reliance Industries and British Gas before an English court, where it decided some parts of the challenge in favor of the two companies and directed the arbitration tribunal to reconsider those parts of the 2016 award.
The tribunal, having reconsidered, issued another partial award in December 2018 which was in favor of British Gas and Reliance Industries. The Indian government challenged this award and the English court is yet to pronounce its judgment.
While this challenge was pending in the English court, the Indian government unilaterally calculated certain amounts, based upon its interpretation of the 2016 award.
Reliance Industries claims the Indian government has not taken cognizance of the 2018 award and approached the Delhi High Court prematurely for enforcement of its claim based on its interpretation of the 2016 award. It argues that according to the 2018 award, the Indian government’s claim comes down very significantly.
The Panna-Mukta and Tapti oil and gas fields in the Arabian Sea off the Mumbai coast were in 1994 awarded to a consortium of US energy giant Enron and Reliance Industries. State-owned Oil and Natural Gas Corporation, which had originally discovered the fields, as a government nominee was given 40% back-in rights. Enron was later taken over by British Gas in 2003.
The 25-year production sharing contracts for the oil field expired on December 21, with Reliance Industries and Royal Dutch Shell not seeking an extension. The oil field was handed to the Indian Government nominee Oil and Natural Gas Corporation.
On August 12, Mukesh Ambani announced the company’s stake sale plan to Saudi Aramco, which controls the world’s second-largest proven crude reserves at more than 270 billion barrels. The partnership is expected to insulate Reliance Petroleum from any future oil shocks and volatility in crude prices.
With this deal, Reliance Industries aims to become a zero-debt company in the next 18 months. Ambani is aiming to slash Reliance Industries’ ballooning debt after spending as much as $50 billion to propel its telecom business to the top position in India within three years of starting operations, surpassing Bharti Airtel Ltd and Vodafone Idea Ltd.
Its telecom unit Reliance Jio disrupted the industry by offering free voice calls and dirt-cheap data rates. Many existing players such as Tata Telecom, owned by salt-to-software conglomerate Tata Sons, and Reliance Communications, owned by Mukesh Ambani’s younger brother Anil, were forced to exit as they found no sense in continuing as going concerns.
The price war left only two survivors – Bharti Airtel and Vodafone Idea – a merged entity of British telecom operator Vodafone Plc and home-grown company Idea Cellular.
The fortunes of Vodafone Idea is precarious as the merged entity is yet to post a quarterly profit amid a dwindling subscriber base. Both Vodafone Plc chief Nick Read and Idea chief Kumar Mangalam Birla have expressed concern about its future and are reluctant to pump in fresh funds.