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GOI Stops Reliance’s $15 Billion Deal with Saudi Aramco

The Government of India (GOI) halts Reliance Industries Ltd.’s (RIL) deal worth $15 billion. Following the news, RIL’s shares dropped by as much as 2.77% to $21.99 per share on Monday, December 23, 2019, after the government filed a petition in the Delhi High Court (HC) seeking to disapprove RIL’s plan to sell 20% share of its oil and chemical units to Saudi Aramco (Aramco), a Saudi Government-owned petroleum and natural gas company.

PMT Case against RIL

The Government’s attempts to interfere in the $15 billion deal is accredited to the issues regarding the pending dues worth $3.5 billion against the company in respect to the Panna-Mukta and Tapti (PMT) oil and gas fields. In 1994, RIL and Royal Dutch Shell (Shell), owned British Gas (BG) Group, had together won the contract and had been operating for 25 years in the PMT oil and gas fields in the Arabian Sea off the Mumbai coast. The 25 years oil production contract expired this week and both the companies backed off from renewing the contract.

On December 21, 2019, RIL and Shell released a joint statement saying, “After 25 years of operating the Panna-Mukta oil and gas fields, the Panna-Mukta and Tapti Joint Venture partners will be handing over the Panna-Mukta oil and gas fields back to the Government of India’s nominee i.e. Oil & Natural Gas Corporation Limited (ONGC).” Both the companies under the name Reliance and BG Exploration and Production India Ltd. (BGEPIL) hold a 30% stake each, while ONGC holds the remaining share.

In August 2019, RIL announced plans to sell a 20% share of its refining and petrochemicals business to Aramco. According to a report, “The deal, which values the oil-to-chemicals (O2C) business at $75 billion, is part of a plan to make RIL a zero-debt company in the next 18 months.”

In September 2019, the Central Government asked both the companies to honor their due payments of $4.5 billion related to the oil production contract. With this development, the HC sent a notice on December 20, 2019, asking RIL and BG to clarify their assets. The Government attempted to restrain the companies from selling their stakes.

The Due Payment and RIL’s Responses

According to the GOI, “RIL and its partner are required to pay $4.5 billion with interest.” As per the petition filed in the Delhi High Court, the GOI claimed, “It was forced to file for the execution of the award as RIL and partner have not cleared their dues. The government, since 2010, has been fighting an arbitration with RIL and its partner, alleging that the companies appropriated huge sums of money in violation of the production sharing contract in the PMT oil and gas fields.”

RIL replied, “It has no immediate liability in the dispute with the state over profits from PMT fields because the arbitration tribunal has not ordered any payment so far”, as a response to the GOI’s claims.

The RIL officials claimed that the Government authorities have overstated the due amount and insisted that the due amount has been reduced substantively. RIL official further stated that the liability, if any, had to be shared by its partners and the company is liable to pay only 30% interest of the estimated claimed.

RIL’s net profits and sales increased from Rupees 11,262 crore in September 2018 to Rupees 148,526 crore in September 2019. However, its share fell drastically after the GOI intervened in the deal.

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